Am I required to submit a signed distribution statement or a Schedule K-1?

A signed distribution statement should be submitted for the following:

Joint Owners: Property taxes on land owned jointly are allocated to each owner.  If co-owners divide each item of revenue and expenses and choose to allocate the property taxes the same way, they may do so only if they attach a copy of a signed distribution statement by each owner.  The statement must show each owner’s share of the revenue and expenses.  This requirement can be met by completing Part 2 of the MI-1040CR-5.  If a signed distribution statement is not attached, the taxes must be allocated equally among the owners, with two exceptions:

  • A husband and wife are considered one owner.

  • An owner eligible to be claimed as a dependent by another owner cannot receive a share of the taxes and cannot claim a credit for that farmland.

Partnership: Property taxes on land owned by a partnership are allocated to the partners based on the partner’s percent of income or ownership.  All partners must use the same basis for filing.  If no U.S. Form 1065 is required, you may use Part 2 of the MI-1040CR-5 to show percentage of income or ownership.

Life Estate: A person in possession of the property under a life estate with remainder interest to another person may claim all the property taxes to compute the credit.  However, the life estate holder and the person(s) holding the remainder interest may choose to divide the property taxes in the same manner as they divide revenue and expenses.  A written agreement must be attached to each return.  You may use Part 2 of the MI-1040CR-5 to meet this requirement.

E-filers: Returns filed claiming joint ownership must have the signed distribution statement for all other owners. You may use Part 2 of the MI-1040CR-5 to meet this requirement.  Tax preparers should retain a copy of the signed statement in their records. Do not mail the signed Form MI-1040CR-5 to Treasury. To avoid the credit being reduced or denied at a later date, the tax preparer must be able to provide a copy of the signed statement upon request.

A Schedule K-1 should be submitted for the following:

S Corporation: Property taxes on land owned by an S corporation are allocated based on each shareholder’s percentage of the corporation’s stock.  This percentage is found on U.S. Form 1120S, Schedule K-1.

Limited Liability Company: Property taxes on land owned by a limited liability company are allocated in a percentage equal to each member’s share of ownership or distributive share of ordinary income as reported to the Internal Revenue Service (IRS).  The percentage is on each member’s Schedule K-1.

Partnership: Property taxes on land owned by a partnership are allocated based on each partner’s share of ownership capital or distributive share of ordinary income as reported by the partnership to the Internal Revenue Service (IRS).  If the partnership files a U.S. Form 1065, the percent of income or capital is on each partner’s Schedule K-1.  If the partnership is not required to file a U.S. Form 1065, the percentage of income is determined by the partnership agreement or on a statement signed by all the partners.

E-filers: You may attach a Farmland Schedule K-1 Worksheet (Worksheet), which allows claimants to identify the percentages they are allowed to claim for a farmland preservation tax credit.  The Worksheet also allows claimants to identify where the business activity is located, any prior year farmland preservation tax credit included in income, oil and gas income or loss and depletion.  The Worksheet, or any similar worksheet which identifies the allowable percentages, may be attached as a PDF using the file name “FarmlandK1.pdf.”  Attaching the Worksheet may reduce the need for further correspondence with Treasury and avoid processing delays.  The Worksheet is available on Treasury’s website at www.michigan.gov/iit.