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Husband-and-Wife LLC: Do They Have to File a Partnership Return?

  • Mar 16
  • 2 min read



Many married couples create an LLC to own rental properties, which provides them with liability protection. After establishing the LLC, they often have an important tax question: Does the LLC require them to file a partnership return?


The answer depends largely on where they live and how they own the property.


Federal tax rules treat any unincorporated business with two owners as a partnership by default. When a husband and wife form a two-member LLC, the IRS typically requires a Form 1065 partnership return. However, some exceptions exist, but most couples do not qualify for them.


The tax law allows the “mere co-ownership” of real estate without creating a partnership. This rule applies only when individuals own property directly as tenants in common and simply maintain and rent it. Once spouses place the property inside a multi-member LLC, they move beyond co-ownership and create a separate tax entity. At this point, the partnership rules apply.


Qualify Joint Venture


Spouses sometimes may ask about the qualified joint venture election. This option lets qualifying couples file a single Schedule E instead of a partnership return. Unfortunately, the election does not apply when spouses operate a rental through an LLC or any other state-law entity. 


Community Property States


However, spouses who live in community property states have more flexibility. [Community property states treat most income and assets acquired during marriage as owned equally by both spouses, regardless of who earned or purchased them.] These states include: 


  • Arizona

  • California

  • Idaho

  • Louisiana

  • Nevada

  • New Mexico

  • Texas

  • Washington

  • Wisconsin


In these nine states, married couples may treat an LLC-owned rental as a single disregarded entity and file one Schedule E. 


The other states do not offer this option. The husband-and-wife LLC must file a partnership return and issue Schedule K-1s. Before forming an LLC, in these states, couples should weigh the liability protection against the added complexity of tax filing.



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