Tax implications for husband/wife starting in rentals

[Daniel C.]

My wife and I are finally getting started with rental properties after months of research and a lot of property hunting. We're going into contract on two duplexes, with one in her name, and one in mine, for financing reasons.

We're looking to meet with an attorney and tax planner, so we'll absolutely ask these questions there as well, but I wanted to ask the forum first.

I work a full time w2 job. She will be transitioning full time into a "real estate professional" for tax purposes. Soul proprietorship sounds like a bad idea unless I only help out with the rentals occasionally, but neither of us plan to take a salary as my w2 job will support us on its own.

Based on the facts provided, are there suggestions for how to structure the rental business and what type of entity if any to use?

thank you

[Ashish Acharya]

@Daniel C. , 

If you will not have an LLC, you will report the activity of two duplexes on Schedule E of 1040. You are not required to treat this as a partnership.

If spouses file a joint return, the joint venture between spouse is a qualified joint venture that is not treated as a partnership. 

However, there might be some tax benefit in your situation to treat this as a partnership (LLC tax as a partnership ).For instance, this treatment could reduce a married couple's SE tax bill when one spouse has wage income above the Social Security tax ceiling ($128,700 for 2018). Using partnership treatment to allocate SE income to the spouse with wages and away from the second spouse could produce a lower SE tax liability.

You may want to talk to CPA.  

Good luck.