Tax Administration Policy - Tenants in Common (TIC), Joint Ventures (JV) and Other Forms of Joint Ownership Tax Assessment
This Business Tax Policy will no longer be applicable for tax years beginning on or after January 1, 2020. For the tax years beginning on or after January 1, 2020, the business income from these activities will be required to be reported to the Revenue Division (Division) at the owner level only.
Prepayments made for tax year 2020 on Tenants in Common (TIC), Joint Ventures (JV), and other forms of joint ownership accounts will be applied to the account of the taxfiler who made the payments, unless notified by the account representative in writing of how the payment should be applied. If the Division cannot determine the specific account that made the payment and no information is provided by the account representative, the Division will use the best information available to it to determine how to apply the prepayments.
Example 1: Three taxpayers (Taxpayers A, B, and C) all own equal portions of 4 Residential Rental Units in the City of Portland. Prior to tax year 2020, they had been reporting the income from these Residential Rental Units as a Tenants in Common (TIC) arrangement in accordance with this policy. Beginning January 1, 2020, Taxpayers A, B, and C are now required to file their own individual returns to report their individual portions of the rental income. For tax year 2020, the gross income received from the rental activity is $120,000. Each taxpayer’s portion of the rental income is $40,000 ($120,000 gross rental income times 1/3 interest) The filing requirements for the three taxpayers will be as follows:
- Taxpayer A: This taxpayer conducts no other business activity anywhere. For tax year 2020, their only business income received is $40,000 from the rental activity, as reported on their personal Schedule E. Taxpayer A would be exempt from the City and County business taxes. They would need to register with the Division and file a 2020 Combined Tax Return and request a gross receipts exemption.
- Taxpayer B: This taxpayer was previously exempt from the City and County business taxes for their Schedule C activity because they previously would gross $40,000 annually. For tax year 2020, they would need to include the $40,000 in rental income from the former TIC property with their other business income. For tax year 2020, Taxpayer B would have $80,000 in gross receipts, which would make them subject to the Portland Business License Tax (due to the increase in the gross receipts exemption to $100,000 for Multnomah County, they would remain exempt for the Multnomah County Business Income Tax). They would owe at least the minimum tax of $100 for the City of Portland Business License Tax.
- Taxpayer C: This taxpayer was previously registered with the Division for their other business activities and regularly paid the City and County business taxes. Taxpayer C will now include the $40,000 in gross rental income from the former TIC property with their other business income.
Note: While the income from the 4 Residential Rental Units is being reported by the individuals now, only one Residential Rental Fee is due per unit. The three taxpayers would attach statements to their Combined Tax Return indicating which taxpayer(s) is/are paying the fees for the four units when they file the return.
For tax years beginning on or before December 31, 2019, this policy applies to multi-owner entities that are allowed to report income directly at the owner’s level for federal taxes. Real property ownership is the most common, but not the only, business activity this policy applies to.
The City of Portland Business License Tax (BLT) and Multnomah County Business Income Tax (MCBIT) laws generally require filing at the entity level (the property level in the case of real property ownership). However, as a practical matter, the City of Portland’s Revenue Division (“Division”) recognizes that most multi-owner entities will elect to report their tax liability to the City of Portland and Multnomah County at the same entity level as that reported on the federal return. This policy seeks to clarify the requirements of the two most common filing choices.
I. Setting up one account for the business activity.
A completed registration form for each business entity or real property establishes a tax account. The account name may use the address of the rental property with entity type in parentheses. An example might be “101 SW Main (TIC)”. The registration form should include the name, federal identification number, and percentage ownership of each and every owner.
A federal identification number or Social Security number and name must be assigned to the account for purposes of issuing federal Form 1099s.
A person must be designated as the “tax contact” for the Revenue Division.
The entity will be treated as a tax partnership, consistent with IRC §761 and Rev. Proc. 2002-22. This tax treatment does not create a legal partnership where no intent to form a partnership exists.
The City/County “Residential Rental Exemption” will not apply because the tax entity is a partnership, not an individual.
The total gross income of the rental real property/business will be used to determine if the $50,000 gross receipts exemption applies.
Example 2: Taxpayers S, T and A are unmarried, equal-share TIC owners of a Portland residential rental property. Each owner reports their share of income on their Schedule E of federal Form 1040. The rental’s 20XX gross income is $60,000, and net income is $6,000. The property does not qualify for the gross receipts exemption because the property’s gross receipts exceed $50,000.
If the property (tax entity) does not qualify for exemption, a Combined Tax Return for Partnerships should be filed to report all income from the rental property (business). Required supporting tax pages may include profit/loss (P&L) statements for the property and any supporting statements and schedules. The checkbox on the Combined Tax Return must be checked to indicate the nature of the entity (i.e., “TIC”). The Division may request the federal Schedule E of individual owners to verify the amounts reported on the Combined Tax Return.
Example 3: Using the facts of Example 1, the TIC will open a tax account named for the property’s location: “405 SW Broadway (TIC).” For the 20XX tax year, the TIC will file a Combined Tax Return for Partnerships, check the TIC box, and report $6,000 net income. The return will allow three Owners’ Compensation Deductions on line six, but the deduction is limited to 75% of net income or $4,500.
II. Reporting the income share of the activity at the individual entity level for each of the owners.
Reasons for electing this option include, but are not limited to:
- The sale of an undivided fractional interest in rental real property, particularly when sold at different times than the other interests in the same property
- Material expenses or depreciation of individual owners that cannot be included in an entity level return
- Lack of cooperation or capacity of the person managing the finances of the property
- Separate filing status requested by individuals who have multiple business interests in addition to the joint ownership of the tax entity
- Inability to assign one federal tax identification number to the entity for federal Form 1099 purposes
In such cases, a representative of the property may be required to petition the Division in writing in order to allow separate filing for each owner. See attached form “Separate Filing Petition for Multiple Owners.”
If required, this petition must include the following information:
- A description and address of the rental property or business
- A list of owners, including name, address, telephone, federal tax identification number, percentage ownership, and any other necessary contact information
- An explanation for the need to file separately
Regardless of the status of the petition, the gross receipts exemption will be determined at the entity level. Capital gains will be combined with gross receipts of the rental property or business to determine the exemption. The City/County “Residential Rental Exemption” will continue to be unavailable to an individual owner that files separately. If separate filings are accepted, the individual owners must comply with the following BLT/MCBIT filing requirements:
- Each owner must submit a completed Registration Form, including name, federal tax identification or social security number, mailing and location addresses, and description of rental properties.
- Each owner must file a Combined Tax Return for Individuals for their percentage ownership of each rental real property or business income and include the following supporting tax pages:
- Pages 1-2 of the federal Form 1040
- Complete Schedule E with address and percentage ownership of each property
- Schedules D and Forms 4797, 6252, and 8824 for all sales or installment sales, clearly indicating amounts and percentage ownership of each property
- Schedule B if there are installment sales of real property
- All schedules and statements relating the income from real rental property or other business, including statements from the financial or property manager
Any payments made to the owner that were deducted to arrive at net income or deducted on the individual Schedule E, must be added back to net income. An owner’s compensation deduction is allowed on line six.
- Each owner is subject to at least the minimum County and City taxes.
- Each owner must comply with the Division’s requests to furnish additional documents.
- Each owner should report their individual share of income from the jointly held rental real property or business.
- Each owner may combine such income on an existing tax account. Supporting tax documentation must indicate the percentage income and ownership of jointly held properties. Taxpayers must use a consistent reporting method throughout the life and sale of the jointly owned property.
Example 4: The Garden View Apartments in Portland are owned by three individuals (Taxpayers J, M, and L) as a TIC. In 20XX, gross receipts are $100,000, and net income is $10,000. The owners acquired their interests in the building at different points in time and have materially different amounts of depreciation. The Division allows the owners to report income at the owner’s level, requiring three returns, each paying at least the minimum tax to the City and County.
Income from the sale of assets of the activity (including real property) should be reported with the respective rental income from that activity or real property.
Example 5: The Garden View Apartments in Portland was acquired by three equal-owner individuals (Taxpayers J, M, and L) as a TIC. The apartment complex is sold 12/31/20XX for a capital gain of $60,000. The rental income for the year ended 12/31/20XX is $30,000 gross and $9,000 net. The property does not qualify for the gross receipts exemption because the gross receipts equal $90,000. The owners have chosen to file separately. On the return, each owner will include their individual share of rental income ($3,000) and gain ($20,000).
Occasionally a single owner may sell an interest in the activity or property of the TIC while the other owners’ interests remain intact. In this case, the capital gain of the single owner will be treated as an independent business of the taxpayer.
Example 6: The Garden View Apartments in Portland was acquired by three equal-owner individuals (Taxpayers J, M, and L) as a TIC. Taxpayer J sells their “undivided fractional interest” in the building on 12/31/20XX and recognizes a $45,000 capital gain. The rental income for the year ended 12/31/20XX is $40,000 gross and $9,000 net. The owners have chosen to file separately. Each owner is exempt from reporting the rental income on a Combined Tax Return because the property as a whole has gross receipts of $40,000. Taxpayer J’s capital gain qualifies for the gross receipts exemption because the capital gain equals $45,000. If Taxpayer J’s capital gain were $55,000 instead of $45,000, then a Combined Tax Return should be filed to report the $55,000 capital gain income.
9/29/2020 Thomas Lannom
Revised: December 2011, September 2020
[ED. NOTE: Forms referenced are available from the Division.]