LLC for Joint Purchase - NJ and CA partners investing in PA

Lender · Riverside, CA · Member since 2017 · 248 posts · 98 votes

A friend @AlisonK8 and I are considering a 50/50 partnership where I would fund a greater portion (or perhaps all) and they would apply for the loan based on their credit score. Many questions arise - where to set up the LLC. Would she be setting herself up for a CA tax liability (where I live) when she's in NJ and the investment is in PA? We are thinking to establish the LLC in PA where the property/properties would be. What should we consider? Is it best to start with a lawyer to draw up the agreement or an accountant to discuss the CA implications and where to set up the LLC? We are buy and hold investors.

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Basit SiddiqiBusiness Member

Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes

Originally posted by @David M.:

@Carrie Matuga

Consult some professionals, but setup the LLC in PA since that is where the property is located. Otherwise, the LLC will have no legal standing in the State

Unless you elect to be taxed as a C Corp, your LLC will be taxed as a partnership which is still a pass through entity. The profit/losses will be calc as per your Operating Agreement, then passed onto each of your personal returns via a K-1 form. So you see, you each will to worry about your own tax returns, Federal and State, on your own profit/loss

Don't forget that CA will charge you $800 annually for every LLC you have, regardless of where it is formed.

That’s the short of it. Have to sleep. Hope that helps. Good luck.

She may not be required to pay the $800/annual if they structure the LLC where she is a non-managing member.

[email protected]917-280-8544

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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
5y
@Carrie Matuga
Consult some professionals, but setup the LLC in PA since that is where the property is located. Otherwise, the LLC will have no legal standing in the State
Unless you elect to be taxed as a C Corp, your LLC will be taxed as a partnership which is still a pass through entity. The profit/losses will be calc as per your Operating Agreement, then passed onto each of your personal returns via a K-1 form. So you see, you each will to worry about your own tax returns, Federal and State, on your own profit/loss
Don't forget that CA will charge you $800 annually for every LLC you have, regardless of where it is formed.
That’s the short of it. Have to sleep. Hope that helps. Good luck.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
5y
@Carrie Matuga
Take a look at @Katie Lepore's post about CA
https://www.biggerpockets.com/...
I think in your case you are "stuck" with using an entity since you are investing with a non-spousal partner. So, just info to be aware up front.
So, other than my thoughts, you might want to discuss with a CPA to get the specifics on your personal State tax implications so that you are comfortable. NJ is just annoying because we have a gross income tax... But, like I said the normal taxation as a partnership for a multi-member LLC is a pass through entity so the actual taxation will be in accordance with your respective filings. Just remember that its usually not advisable to hold Title to property in a corporation (C or S).
Then, find a good PA attorney to help you with the Operating Agreement. Remember, when Title is held by a legal entity you need an attorney to represent the LLC if you have to go to court.
So, are you going for a some sort of "hybrid" setup? The "cleanest" way to do it would be take Title in the LLC and get a commercial loan. How are you going to take Title, get the loan, and perform the leasing? Legal entities aren't eligible for conforming residential loans so you will have to get commercial financing. But, if your friend is going to get the loan, then Title can't be in the LLC.
Doing the "buy personally then deed to LLC" is done often, but in my layman's opinion I find it questionable. Its been discussed many time. Here are just a couple of prior threads:
https://www.biggerpockets.com/...
https://www.biggerpockets.com/...
Ultimately, it just depends on what you need and want...
Good luck.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
5y
@Carrie Matuga

Consult with an attorney but you likely want to set up the LLC in PA since that is where you will be doing business. You will need to file an annual tax return with the IRS along with getting a registered agent in PA.
[email protected]917-280-8544
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
5y
Originally posted by @David M.:
@Carrie Matuga
Consult some professionals, but setup the LLC in PA since that is where the property is located. Otherwise, the LLC will have no legal standing in the State
Unless you elect to be taxed as a C Corp, your LLC will be taxed as a partnership which is still a pass through entity. The profit/losses will be calc as per your Operating Agreement, then passed onto each of your personal returns via a K-1 form. So you see, you each will to worry about your own tax returns, Federal and State, on your own profit/loss
Don't forget that CA will charge you $800 annually for every LLC you have, regardless of where it is formed.
That’s the short of it. Have to sleep. Hope that helps. Good luck.

She may not be required to pay the $800/annual if they structure the LLC where she is a non-managing member.
[email protected]917-280-8544
Basit Siddiqi CPA4.880 Reviews
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