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March 28, 2025
Question

Tax Classification for Multi-Member LLC for Co-Ownership of Property

  • March 28, 2025
  • 1 reply
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My two siblings and I inherited a small commercial property from our mother.  The property has a triple net lease, so it requires no active management.  I have set up an LLC to hold the property.  Now I am completing the online request for an EIN, and the tax organization selection section says the following:

"An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. However, a joint undertaking merely to share expenses is not a partnership. For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants."

So it says that it is not a partnership, but I can't find any further information on the correct classification for this scenario.  Can anyone point me to instructions regarding the correct tax classification for a multi-member LLC whose only activity is ownership of a commercial property with lease income and no services provided to the tenant?  Thank you!

 

1 reply

March 28, 2025

You can elect to be taxed as a Partnership or Corporation.  

Elaine15Author
March 28, 2025

Thank you, Mary.  However, classification as a partnership looks to contradict the irs.gov statement that our scenario is not a partnership.  Are there other IRS documents that explain this?

March 28, 2025

I am not sure why you do not think it qualifies as a partnership- are you not collecting rent or do you intend to sell it for less than market price?

You can  see the IRS guidance at LLC filing as a corporation or partnership and Limited liability company (LLC).  @Elaine15