Questions about US Real Estate

[dasilvja23]

I'm curious about what steps one should take when investing in US real estate. More specifically, what are some of the tax implications one might face? I've heard of incorporating yourself or getting an LLC or LLP to reduce the tax hit when receiving income from the US.



I'm looking into "flipping" property but without actually owning it. So I'm not overly concerned with the laws, taxes and otherwise, regarding owning US property. I hope to be able to buy cheap with a seller lined up and flipping it to them for a profit. The method used for this is not the topic of this thread. The parts of the process I'm interested in learning about right now are regarding tax and law.



It's clear what a valuable resource these REIN forums are. Everyone here has been extremely helpful since I joined. I imagine someone will be able to shed some light (any light at all is appreciated) on this topic and in the meantime I will continue to research myself and learn what I can with the other resources I have available.



Thank you in advance for taking the time to read and, perhaps, reply. I will appreciate and value any insights you may care to share.

 

[Thomas Beyer]

Real estate held in a corporation (such as a C-Corp or an LLC) will attract higher taxes (35%) than personally held real estate. You must intimately understand tax and legal implications especially if you intend to do numerous for profit ventures in the US. Taxes and practices differ by state, so what is true in AZ may or may not be true in TX.

 

[REQRentals]

Hi,



I am not in any way qualified to give tax advice but some observations from managing US properties tat you should ask your own accountant about.



I had understood an LLC can be problematic as one of the main benefits to US residents is that they can treat it either as a flow through or a distinct entity.



An LLC is not recognized by Canada and can create difficulties (Google "canadian investor owning property in LLC tax") This is one short summary on an accountants site



DO NOT own US vacation property in a limited liability company (`LLC`) or revokable living trust

In the US, LLCs and revocable living trusts are very frequently used as a vehicle to own real estate, and for US citizens who are not Canadian residents there can be great benefits to using these. Since these vehicles are so common in the US it is not unusual for US advisors to innocently recommend them to Canadian residents. However, the Canadian income tax consequences to using these vehicles can be disastrous for the following reasons:

• Both LLCs and revocable living trusts do nothing to avoid the US estate tax.
• LLCs are taxed as partnerships in the US but they are taxed as corporations in Canada. Use of an LLC can, therefore, result in double taxation, lack of treaty protection, and recognition of `taxable benefits,` as discussed below.
  Revocable living trusts are ignored for US income tax purposes, but this is frequently not the case for Canadian purposes. Use of a revocable living trust may, therefore, result in double taxation.

Totally MUST deal with a CPA who is cross qualified to deal in Canadian and US Tax so that you do not get caught up on one side or the other.



Who you sell the properties to matters as there are reporting and withholding requirements on sale of US property by non-residents.



Most clients who own a few properties and hold them for more than a year hold them personally as the capital gains rate is lower. If you use a corp it may be possible to "roll over" the properties without payment of gains tax or recapture of losses (ask accountant about section 1031 exchange - again does not work for Canadians if held personally, partnership, LLC flow-through because you end up double taxed).



But any property you hold for less than a year will be taxed as income regardless so in your case no advantage. Cannot "1031" property you flip or hold as inventory either I think

 

[KevinSolomon]

^ This. An excellent post.