say you can find financing for a property but they will only finance in your personal name.. can you transfer the property into an LLC after this? or does it cos a big tax headache as the loan then isnt a business deductible expense? (its still in the personal name)
white_goodman wrote:say you can find financing for a property but they will only finance in your personal name.. can you transfer the property into an LLC after this? or does it cos a big tax headache as the loan then isnt a business deductible expense? (its still in the personal name)ASSUMING you are able to find US financing in your own name ….a huge challenge for a "Non-Resident Alien" on the intended US property …. then depending on the actual contract of the loan you will be able to transfer the Mortgage and loan facility to your LLC at minimal cost.
This process is much simpler than our Australian transfers and does not trigger off stamp duty as it does in Australian states.
In some furum threads you will see that it is possible to buy a property by taking on the mortgage/loan responsabilities for the property with the blessing of the bank.Depending on the US State/county it may be a "short sale" or "Quit Claim Deed" etc
From what I have read, you may have to hold the property for 90 days +/- before being able to "quit".isnt there an issue where it has some clause in the loan whereby the sale or transfer of thte property requires the loan amount to be repaid?
white_goodman wrote:isnt there an issue where it has some clause in the loan whereby the sale or transfer of thte property requires the loan amount to be repaid?The US loans are VERY different to the Australian Banks. As far as I know, most US residential loans are NON-Recourse which is why they have so many properties in loan payment default when the owner finds themselves with negative equity compared to mortgage value. Some are fixed rate for the entire life of the loan (not just first 1-5years as in Aus). With current rate of defaults in the US the banks are open to allow the property to change hands at no loss to them rather than forcing the whole foreclosure scenario that involves the County Court and "fire sale" prices.
Your initial query was based on a loan in your own name … and then a transfer to your LLC. -Possible- but as it is not an unrleated party AND not in default / risk of foreclosure your scenerio will depend entirely on the contractual clause of your loan provider in the US.
well I assume their will be some sort of clause to stop a quit claim deed, I guess the question is at what number of properties is it smarter tax wise to place them all in an LLC, im guessing around 3 or 4
white_goodman wrote:well I assume their will be some sort of clause to stop a quit claim deed, I guess the question is at what number of properties is it smarter tax wise to place them all in an LLC, im guessing around 3 or 4"Tax wise" the LLC is a "pass through" entity and handled by the US/Aus tax treaty. The number of properties owned under a single LLC relates more to the risk of being sued/litigation in the US as a claim will go against the assets of the legal owner – in this case the LLC.
Suggest you read some of the US forums for some "nasty" stories in this area such as.
http://www.biggerpockets.com/forums/51-tax-legal-issues-contracts-self-directed-iraIn my quest for logic and sanity regarding the ownership Pros/Cons of LLCs I came across some good posts from Biggerpockets.com that explain some of the finer details in some plain language.
Can Nevada or Wyoming Protect Your Real Estate Investments in Another State
A more in-depth article goes into detail regarding Florida specifics.
Setting the Record Straight on Florida LLCs
If your investing in Florida you will need a LLC registered in this state to trade properties however this may not be the case if your are buying investment property with the intention to hold it long term i.e. you maybe able to buy your long term holds in a foreign entity such as a Wyoming ,Delaware or Nevada LLC. This is something you will need to discuss with a USA attorney. Also in Florida something to be aware of is a single member LLC is treated as a disregarded entity thus providing you with little to no protection therefore it is recommended to have a dual member LLC. Again you need to discuss this with your USA attorney.
Every State has different requirements and rules so first you need to decide where you will be investing and how that states rules apply to your situation,whether you will be trading or holding property so you can decide your next step.stuparker wrote:If your investing in Florida you will need a LLC registered in this state to trade properties however this may not be the case if your are buying investment property with the intention to hold it long term i.e. you maybe able to buy your long term holds in a foreign entity such as a Wyoming ,Delaware or Nevada LLC. This is something you will need to discuss with a USA attorney. Also in Florida something to be aware of is a single member LLC is treated as a disregarded entity thus providing you with little to no protection therefore it is recommended to have a dual member LLC. Again you need to discuss this with your USA attorney. Every State has different requirements and rules so first you need to decide where you will be investing and how that states rules apply to your situation,whether you will be trading or holding property so you can decide your next step.Actually you dont need a florida llc to buy or trade properties, you simply need a 'certificate of good standing' from whichever state the llc is registered in. Its something you can get online.
Hi guys,
it's definitely better invest through the LLC rather than in personal name. Even though you would be the only member, it has sense for liability protection, but mainly for taxation purposes. You can deduct so many more expenses on the company that way.
Definitely when you would be investing in a group of people, it's easier to start the LLC and have the shares in it specified in the operating agreement.
When I was starting with my investment in the US, I just used an online service for starting the company. I have used incparadise.net and got the LLC in nevada in 2 days for about $300. There are more services like that in the US, so you might find another sites as well, but that's basically all you need. I don't think you have to hire attorney for this.
The only reason why to call attorney would be to review the operating agreement in the case there would be more members in the LLC, because the generic operating agreement from the online companies might not be sufficient for the specifics of voting and transferring the ownership of the members etc.
For the financing/lending part – in fact in the USA they don't borrow just to the company, but your name is in the lending contracts as well. It would be the best, if you could borrow just on the LLC, it would be much better, but much more risky for the bank.
There has been a bit of tax discussion with the LLCs so I thought I'd run one by anyone who may know the answer. Here it goes…
What I’m trying to ascertain is how the IRS in the US will tax a Delaware LLC which will be owned by a Self Managed Superannuation Fund in Australia? I don’t know if you have familiarity with Self Managed Super Funds (SMSF) in Australia but they essentially are Trusts that act similarly to a 401K in the USA. Funds are deposited into the Trusts at a 15% tax rate (some discounts and deductions may apply) and when in pension mode and it’s paying out, there is no tax on those funds. So now we get back to the question, if the LLC is taxed based on the owner of the LLCs tax rate (pass through), what rate would the IRS tax it at if the SMSF is in pension phase and is not taxable? The question also applies to capital gains.in the UK we have SIPP's which are self invested personal pensions which I suppose are similar to the SMSF, the IRS doesnt give them any favourable tax status and taxes as it would a normal llc.
But its a complex area and specialist accountancy advice would perhaps be a good idea. I have the advice I got if you like I can send you this?
guehling wrote:There has been a bit of tax discussion with the LLCs so I thought I'd run one by anyone who may know the answer. Here it goes…
What I’m trying to ascertain is how the IRS in the US will tax a Delaware LLC which will be owned by a Self Managed Superannuation Fund in Australia? ……. So now we get back to the question, if the LLC is taxed based on the owner of the LLCs tax rate (pass through), what rate would the IRS tax it at if the SMSF is in pension phase and is not taxable? The question also applies to capital gains.Great questions guehling.
I was hoping to read about this in another thread Purchasing in USA using SMSF … but no joy yet.
Have you had any other feedback?Sorry guys, been offline for a while and so didn't get the requests.
My understanding is that an LLC submits a tax return but IS NOT TAXED… much like partnerships in Australia. The tax would be paid here in Australia, under the taxation law for the entity.
For those who were asking about a US based attorney, I decided to post it here…
Cammie WarburtonCorporate Direct, Inc.2248 Meridian Blvd., Suite HMinden, NV 89423775-284-7162 Directstuparker wrote:If your investing in Florida you will need a LLC registered in this state to trade properties however this may not be the case if your are buying investment property with the intention to hold it long term i.e. you maybe able to buy your long term holds in a foreign entity such as a Wyoming ,Delaware or Nevada LLC. This is something you will need to discuss with a USA attorney. Also in Florida something to be aware of is a single member LLC is treated as a disregarded entity thus providing you with little to no protection therefore it is recommended to have a dual member LLC. Again you need to discuss this with your USA attorney. Every State has different requirements and rules so first you need to decide where you will be investing and how that states rules apply to your situation,whether you will be trading or holding property so you can decide your next step.If you set up an LLC in Wyoming or Nevada, you do not need to set up another LLC in Florida, BUT you must register your Wyoming/Nevada LLC in Florida as well. Thus, the Wyoming/Nevada laws still protect, in my understanding. Check with an attorney.
xarp wrote:When I was starting with my investment in the US, I just used an online service for starting the company. I have used incparadise.net and got the LLC in nevada in 2 days for about $300. There are more services like that in the US, so you might find another sites as well, but that's basically all you need. I don't think you have to hire attorney for this.The only reason why to call attorney would be to review the operating agreement in the case there would be more members in the LLC, because the generic operating agreement from the online companies might not be sufficient for the specifics of voting and transferring the ownership of the members etc.
Yes it is true that you don't have to hire an attorney for a lot of the incorporation process.
On the other hand, I have been able to ask numerous questions of my US attorney, for which there has been no charge, as I prepare to incorporate – and I am sure that the time spend answering my emails is being done for a bargain price, given that her firm only charges $695 at present to do the incorporation. Take away $300 for doing it yourself (and the time to work it out)… definitely a bargain.
Not sure if the original question was ever answered.
Do you buy a USA investment property under your own name or use an LLC??
First up, I am in the process of buying our first investment property in the USA and I have been vexed by this question. I am a nurse working in Adelaide with no legal experience so my response here is simply from researching stuff on the internet. I could be very very wrong but this is where I am at.
If you ask any US property attorney or review their websites, the answer is very clear = you would be 'insane' if you didn't setup an LLC and pour the property into it.
Why?
One word. "Litigation".
To protect your assets outside the LLC. If attacked by a litigation by anyone in a fairly litigious society, then the LLC is attacked with little hope of attacking assets outside the LLC. Although it appears the LLC veil can be pierced if your negligence is particularly poor.
There appears to be little to no taxation benefits if you are the sole person attached to that LLC. There are more benefits if there are other members on lower incomes but then there are added costs and more complex taxation issues to overcome.
As far as I can see, litigation is the major reason to setup an LLC to protect your other assets.
Here's my issues.
If I go up to a brand new car yard salesman with my 3 year old car and ask him if he thinks I need a brand new car, I'm pretty confident of his response. "Of course you do".
And there's going to be some very good reasons why this is a fantastic idea.
1. The latest model has extra air bags. You want the latest safety features for your family, right?
2. This model has GPS and a DVD player.
3. This model has 2 extra speakers for better sound quaility
4. This model now has a rear view camera for safety
etc etc
But do you really need a new car????
They want your business.
They want your cash.
It's the same with property attorneys. It would be very bad business practice to tell you that an LLC is a waste of money and you should spend it elsewhere.
ISSUES:
– They cost you money to setup.
– There are ongoing costs with an LLC
– More costs if you buy another USA property in another state because you have to register that LLC in that state.
– If you buy a 2nd US property, do you setup a new LLC for that property to protect it from the first property or pour it into the original LLC? Thus exposing both properties to litigation effects.
To make matters more complex: everyones situation is different and everyones risk profile is different.
The way I currently see it:
If you buy a USA property that has been rehabbed and,
You get a good property inspection completed before settlement and
Address all issues before tenants enter and
A good property manager onboard to address issues as they arrive promptly and
A home warranty insurance so repairs are carried out by a licenced builder with liability insurance and
Good quality landlord insurance with increased liability insurance.
A tenant will thus find it difficult to sue you for negligence because you have followed all the due processes.
In conclusion, I know an LLC setup is the best way to go, but if it costs you too much money to operate with ongoing costs and even then its not gauranteed to protect you……….
Just my thoughts.My few cents,
If you buy one property then it makes no difference and a waste of money (unless other assets in the US). A single member LLC is disregarded for tax purposes and you have to get an ITIN number and lodge a personal tax return in the US.
I have 6 properties in varies states and have set up multiple LLC’s and hold app $100K in each (asset protection) LLC single member is an Australia Trust (so common ownership).
In many states you can set up your own LLC online for $50-100.00 but you need a registered agent in the US which cost around $100-125 (sometimes your management agent offers this service)
You need separate bank account and conduct all LLC business separately otherwise if you “mix things” then the protective veal can be pierced.
Ps: Just bought a property in Detroit for $27K renting for $1350 per month. Unbelievable.
Hi Bigaz13,
Litigation is one aspect of why it helps having the property in the name of the LLC. A second reason which nobody has mentioned in this forum is the impact of FIRPTA (Foreign Investment In Real Property Tax Act) Withholding Tax. This applies not only to the sale of the property but also to the rental income you receive as a foreign investor. If you purchase in your individual name you will be classed as a foreign investor and your Property Manager then becomes the withholding agent for the IRS and withholds 30% of your gross rent each month. This is then forwarded and reported to the IRS by March each year.
Once you lodge a tax return as the individual the tax withheld will marry up with your tax return and adjustments will then be made. You can then elect to have tax deducted as if you were carrying on a business in the US (rate then reduced to zero) and you then pay tax to the IRS net of all expenses. If your property manager doesn't know anything about it I suggest that they make themselves familiar with it as the IRS law considers them to be the withholding agent and will actively pursue the property manager for the tax they should have collected plus penalties. It's becoming one of the most common civil actions taken by the IRSIf you purchased in the name of a LLC, it is considered a US corporation and the property manager would not deduct the 30%. Note that the LLC may also be liable for withholding 30% of the dividends it pay's to you but you will need to speak to a CPA for more details on how this can be minimised.
An LLC also gives you some benefits with regards to estate and gift taxes being treated as a US corporation as opposed to owning it personally as a foreign investor
Just an opinion formed and confirmed by a reliable source. I also have a link to the IRS website which explains this if you need it
Just a quick point to make here – I don't know exactly how your taxes would be affected as a non-American, but most foreign investors find it easier to buy using an LLC. Simple tasks such as connecting utilities and getting bank accounts opened up (unless you already have one) will be much easier with an LLC. You will need to obtain an ITIN number (personal tax ID) and an EIN number – company tax ID, but pretty much any incorporation agent or individual willing to spend some time can do so.
Liability – this can be minimized with the right policy even for an individual but an LLC can certainly help you.
Taxes – LLC's pass thru their income to the owners and the profits have to be declared on your 1040 – Individual return. As far as what I know, this tax is then offset against your Australian tax, but you need to pay US taxes on US income, although (in our experience) you can write off more expenses thru an LLC than as an individual.
State registration – Above posters are right in that a Florida LLC can own property in Nevada etc, they just need to register with each states Division of Corporation that austhorises them to do business in that state. This is a really simple process
Quit claims – Yes you can quit claim for a nominal fee from yourself to your LLC, or vice versa, as long as there is nothing in your mortgage that would prohibit that – but for a cash purchase, no problem.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
