Reporting Personal-Title Properties on a Partnership Tax Return

[Margaret Feit]

My husband and I are members in an LLC partnership that owns several rental properties. We also have a handful of properties that are titled in our personal names because we have mortgages on them that had to be in our names. We do the accounting for all the properties as part of the business. They are all under one Quickbooks file. The LLC receives all the rents in its checking account and also pays all expenses, including the mortgages that are in our personal names. So far we have been reporting all the income and expenses on our partnership 1065 tax return, rather than filing a schedule E on our personal return. The CPA we worked with last year told us that this was a fine practice, as long as we are accounting for and reporting everything and paying all the taxes we owe (we are), that it is okay to report it all on the partnership return where we are actually running the accounting, rather than dividing the properties up between the 1065 and the 1040 according to the name on the property titles. Since the partnership is a pass-through entity, it doesn't make any difference in the amount of tax that we owe - just keeps the accounting simpler to do it all in one place. But before we continue any further with this practice, I wanted to ask the community whether anyone else has experience with this, and whether this arrangement could potentially get us into trouble down the road. I know there are liability ramifications with the way the properties are titled, but in this case my question is really about the tax reporting between the two returns and not the division of liability. Thank you!