Partnership and taxes

[Erez Friedlander]

Hi BP,

I am planning to partner up with a friend and purchasing properties under a co-managed LLC but have no knowledge if there are any tax issues or is it just the same as for the LLC my wife and I share and have 1 property under it.

I am not looking for legal advise here, just thought maybe someone has experience and could share their personal opinion.

Thanks in advance for any replies.

Merry Christmas from Israel

Erez

[Bob Norton]

@Erez Friedlander @Polo Vazquez The tax issues are generally the same with a partnership LLC with a friend as partner or a spouse as partner. There are two structural items to consider.

The first is that if you reside in a community property state in the USA, which treats properties owned jointly by spouses as being a single owner (simplified explanation!), then the IRS allows you and your spouse to elect to file the LLC as disregarded on your personal tax return or as a partnership with a separate tax return.

The second issue is that the partners can agree how to split up profits in a way that differs from their respective percentage of ownership. This would be defined in the LLC's operating agreement (which you should definitely have for multi-member LLCs). For example, if one member provides financing and the other member manages the property and does not invest any funds, then the members may decide to split up the income so that in years with losses, the losses are allocated 100% to the financing member, and in years with profits, the income is allocated 50/50 (or whatever the ownership percentages are.)

I hope this helps.