How to Protect Your U.S. Real Estate Investments

Sep 19, 2019 by

Learn how to protect your U.S. real estate before you invest. The good news is that when investing in U.S. real estate as an international investor, it is very similar to a U.S. individual investment in U.S. real estate.

For this discussion for real estate, we are referring to single-family homes and multi-units that can be rented out, and commercial buildings that can be leased to business owners. 

Protect Your U.S. Real Estate Investments

Protect Your U.S. Real Estate Investments

 Here are some common important facts:

  1. Never own U.S. real estate in your own name, personally (long-term). If you have a mortgage, you will have to typically close escrow in your own name personally, then quit claim or warranty deed it to an entity (typically an LLC).
  2. Do not put all your “real estate eggs” in one basket. If you have four triplexes worth $500K each, that is $2-million of real estate, and if the properties are free and clear (no mortgage) by putting the real estate into one LLC, you are exposing all the equity to a lawsuit by any one of the properties.
  3. You may need 2-3 U.S. entities to protect your real estate investments. The key is how they are managed, and structured. 
  4. An LLC (limited liability company) makes the most sense as an entity to protect U.S. real estate (not a Corporation, because of double taxation). The LLC would either be a two-member LLC taxed as a partnership or a single-member LLC taxed as a disregarded entity.
  5. If you live in California, for example, and you own property in Florida, if you form a Florida LLC to own that property, California will require that the Florida LLC register to also do business in California. You have nexus (or a business presence) where you are doing the work (checking your bank balances, transactions) and where the physical property is located.
  6. You will need a separate bank account in the name of the LLC.
  7. You will need a separate EIN number for each LLC.

Being international, a lot comes into play with U.S. tax responsibilities. If the U.S. LLC you establish is owned by you personally, you will need to obtain an ITIN number (Individual Taxpayer Identification Number). This is equivalent to a U.S. SSN (social security number) for tax purposes.

U.S. Tax Responsibilities 

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12 LLC Strategies to Protect Your Assets and Financial Future

Sep 9, 2019 by

The proper LLC strategies will help ensure your assets are really protected. Unfortunately, most will file a “simple LLC” online for the least amount of money and are later surprised when they are not protected.

First, let’s look at the history of the LLC. The Limited Liability Company (LLC) is a powerful entity that originally started in Wyoming in 1977 and became more popular in the late 1990s. It is a hybrid between a partnership and a corporation. Most are unaware that an LLC can be taxed in four different ways: disregarded, partnership and S or C corporation.

The IRS established federal default rules to simplify this determination in 1997. A one-member LLC by default will be taxed as a disregarded entity for tax purposes and a two-member LLC will be taxed as a partnership for tax purposes.

Which LLC is Best?

Which LLC is Best?

Now let me share with you 12 LLC secrets that will not only keep you up out of tax trouble but help you better avoid pitfalls down the road.

  1. Can an IRA invest in an LLC? Yes, but…This is a popular strategy when looking for different investment options for retirement funds. Many are looking to take advantage of the real estate market to invest in and find they do not have the money personally to invest, but their IRA does. This strategy involves moving your IRA to a self-directed IRA and the IRA becomes the member of an LLC. In other words, the investment is in the membership interest of the LLC.

    There are a couple of major issues with this strategy that could create problems with the IRS. First, if you are the manager of the LLC and you are on the LLC checking account that has IRA funds, that means you have “checkbook control”. There are prohibited transactions in where you cannot use that money, but more importantly, is that the signer on the account may use the LLC money for personal use which is a big problem and could create serious IRS issues. The second issue centers around who can be the manager of the LLC. Can it be you also? Is that self-dealing?

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The Business Master Checklist to Review Before You Ever Start Another Business

Aug 6, 2019 by

Before you establish a new business you must review our master business checklist to help you determine, if a new business, or entity is necessary.

You have one business up and running with some success. You are considering starting another business and dividing your focus.

Perhaps you do not want to put all your “business eggs” in one basket. What if one business slows down and the other one picks up? As you know, the worst number in business is one – one vendor, one client, one affiliate, one bank account. Does that mean one business? Not necessarily.

Your Business Master Checklist Before Starting a New Business

Your Business Master Checklist Before Starting a New Business

First, what are your reasons for starting another business? Here is a the start of the business master checklist. Let’s consider them carefully:

  1. The first business is not working.
  2. You found a new product in another niche that should bring in more revenue.
  3. You want to diversify into another niche.
  4. You see an opportunity in your current niche and starting a new business (more so a new company) to service the opportunity in that niche.
  5. Your business partner was lame, and you started a new company and a new business, perhaps in a similar niche, to move on.

The first one is fairly obvious as to the concerns; yet, many fall into this trap.

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Questions to Help Determine if an LLC or Corporation is Best.

Jun 13, 2019 by

Which entity is best for your new business, an LLC or Corporation? When you form a new LLC or corporation, the process is so easy, with so many online websites. Filing the articles with a registered agent is the easiest part of the process. The challenging part is to determine how your corporation or LLC should be taxed at a federal and state level and to make sure you have a complete formation, one that has real liability protection, not just filing the articles, which has ZERO protection.

Ask these Questions to Help You Determine is an LLC or Corporation Best?

Ask these Questions to Help You Determine is an LLC or Corporation Best?

Here are some of the key questions we recommend you evaluate before you form an LLC (which may be taxed in four different ways) or a corporation that may be taxed as a C corporation or an S corporation.

  • What is your business and how does this affect your choice?
    • A personal service corporation, in the past, was a flat 35%; but since the 2018 tax cuts, that has now been reduced to 21%
    • 20% deduction for pass-through income, with some restrictions
    • Are you investing in real estate or do you flip real estate?
    • Are you an e-commerce seller with potential sales and state income tax requirements?
    • Do you own real estate? If so, are you a dealer or investor? How many properties do you own? How much total equity and what percentage of your total net worth is all the properties?
  • Do you have partners?
    • Is it a domestic partner in a community property state (there are 9)? This comes into play with a single or multi-member LLC. 
    • Is it a foreign partner in another country? If so, is there a tax treaty with your partner’s country?
    • Do you plan to have a buy-sell agreement?
    • Is one partner an investor? This has a big impact on how your LLC is managed. 
    • Do your partners have an SSN or ITIN (this is important for banking, U.S. merchant account, and sales tax registration in a few states).
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Distributions from an LLC

Apr 23, 2019 by

Knowing how your distributions from an LLC are taxed is critical to your LLC formation strategy. After your LLC is formed, your business is up and running, and revenue is flowing, will you come to that important point where you distribute money to the partners. That may be just you, your spouse, or other outside partners.

Some people just write checks from the LLC to themselves, as the owner, and really don’t consider the tax ramifications of their actions. This is especially important anytime you have a partner, whether that is a spouse, outside partner, or a separate legal entity.

LLC Distributions

LLC Distributions

Let’s address some basic fundamentals first, then get into more details:

The first step is to be aware of how your LLC is taxed. Are you a single member LLC taxed as an S corporation, or disregarded for tax purposes? If you have earned income and a single member LLC that will flow through to schedule C, you are basically operating as a sole proprietorship, but have the liability protection of an LLC).

Test question: Is there any payroll for a single member LLC? The answer: depends. If the LLC is disregarded for tax purposes, there is NO payroll to the owner. Is it possible for a single member LLC to have employees? Yes. If the single member LLC is taxed as an S corporation, the active member (owner) would have payroll and distributions. If you have a single member LLC taxed as an S corporation, of course, the only member is active. If you have a two-member LLC taxed as an S corporation, it is possible that the second member could be passive (this could be a spouse or silent partner). Would the passive member be the manager of an LLC? No. By definition, if passive, they would not be running day-to-day operations. Keep that in mind.

A single member LLC taxed as a C Corporation; there would be, at some point, some type of payroll to the owner of the C Corporation. Is it possible that there was only enough revenue in the LLC taxed as a Corporation to only pay business expenses and not enough profits left over for any type of payroll? That is possible. You may take dividends out of the LLC taxed as a C Corporation, but keep in mind dividends are NOT deductible to the LLC taxed as a C Corporation’s profits.

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