16 unit complex EIN Number for TIC

[Tyler Brown]

Hi BP, 

I'm nearing closing date for a 16 unit complex. I'm entering into the contract as a tenancy in common with my business partner with plans to switch into an LLC myself soon after and then have my business partner join the LLC later given that he is using money from a 1031 exchange. For tax purposes, should we obtain an EIN number? Or could we both just submit schedule E's reporting our half of income and expenses? Thanks in advance

[Dave Foster]

@Tyler Brown, You're on the right track with the conversion from tic to LLC ownership to accommodate your partner's 1031. However, you need to consider the ramifications of doing so. As soon as he contributes his interest to your LLC after the 1031 is complete there is a new tax payer for the property. It is now the LLC. And the LLC is no longer a single member so it will have to be taxed as a partnership or scorp, file it's own tax return, and give K1-s to each member. It will be it's own distinct tax paying entity.

And because it is now the tax payer for the property it will have to be the entity that sells and does the 1031. So at that point you'll be stuck together until that LLC completes its own 1031. You'll only be able to separate after that if needed.