Rental Property: Multi-member LLC vs Tenants-in-Common

2 Replies

Hi,


I'm new to the forum; it's a pleasure to be part of the group. I'm considering purchasing a rental property with a family member and would like to hear your thoughts on forming a multi-member LLC holding the property vs two single-member LLCs holding the title as tenants in common (TIC). Details:

  • Cash purchase and cash rehab of house - no loans
  • Lot contains a house and garage. Plan is to subdivide lot, sell a portion of the raw land, and rehab the existing house for a rental that we will hold long term before sale. 
  • I live in MD, partner to be is an NC resident.

Questions:

  • My accountant suggested a multi-member LLC, but wouldn't holding the title as 2 single-member LLCs eliminate Maryland tax filing fees as well as the NC partner being hit with both MD and NC tax on out of state LLC partner's earnings?
  • Would either of these options simplify an eventual 1031-exchange?
  • Ideally, I'd like the option for us to disproportionately distribute expenses and associated deprecation or tax deductions. For example, I fund payment for roof replacement and therefore can deduct the depreciation from my taxes as opposed to splitting it 50% with partner. Is this easier to achieve under the multi-member LLC or TIC single-member LLCs structure?
  • Any other recommendations?

Thank you in advance for your feedback.

@Brandon Wesley

You didn't mention where the property is located.

Question 1
TIC - The rental property will be reported on your schedule E. Each owner will be required to file a tax return where they reside and may be required to file a return where the property is.
Partnership - will be required to file a tax return where the property is located. The partnership will also distribute a K-1 to each member. The member will then still be required to file a tax return where they reside and may be required to file a return where the property is located.

Question 2
TIC - 1031 will qualify
Partnership - Partnership will qualify to do a 1031. You can't 1031 your ownership in the LLC.

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