Avoid Unwanted Partnership Tax Status
- Latoya J. Jessamy
- Jun 16
- 1 min read
If you’re involved in a real estate or investment venture with one or more parties—perhaps co-owning property or collaborating on a business project—you might think you’re simply sharing ownership.
But the IRS may see it differently. Without proper precautions, your arrangement could be classified as a partnership for federal tax purposes, triggering filing requirements and potential penalties you weren’t expecting.
Why Does It Matter?
Under IRS rules, many informal joint ventures—such as syndicates, pools, and unincorporated business arrangements—can be treated as partnerships, even without a legal partnership agreement.
This could mean:
You would need to file Form 1065 annually.
You would have to issue Schedule K-1s to all co-owners.
You might lose eligibility for Section 1031 like-kind exchanges.
You may incur potential IRS penalties of up to $255 per month per partner, with a maximum duration of 12 months.
Fortunately, if your situation qualifies, you can elect out of partnership status and avoid these issues.
