Reporting rental property income (tax questions)

[Harrison Biddulph]

Hello Everyone,

My sister and I recently inherited a paid off rental property that nets around 20k a year. This house is held within a living trust that my parents set up. All assets within the trust are supposed to be divided 50/50 between my sister and I.

Is there any way one of us can report 100% of the income the property generates (while maintaining that 50/50 ownership)? Maybe there are some creative tax strategies or the creation of an LLC that would allow this...

However, if there is no creative tax strategy that allows this what would be the easiest/lowest tax way for one of us to give “sell” their partial ownership in the property each other?

There are many reasons we would like to do this but the main reason is it would allow one of us to report a higher income and improve our debt to income ratio.

Thanks for all the help!

[Eamonn McElroy]

If you sell to the sibling I imagine you are going to do it on installment sale, so it may be a wash for DTI purposes.

If you gift it to the sibling, you must really love that sibling to gift (around a hundred thousand dollars?) so they can improve their DTI.

Maybe a partnership with a waterfall allocation makes sense, but there must be 'substantial economic effect' for such an allocation to be respected.

Why not just do a cash out refi and use the proceeds to buy 2-5 more properties?

All this strategizing on how to allocate taxable income to one individual in a bona fide manner...the juice may not be worth the squeeze...