A question I get asked a lot is…
“Do I need an LLC to buy property in the USA?”
In case you don’t know, an LLC is a Limited Liability Company.
When you buy property in the US you have various ownership options.
The 2 most common are:
- Own the property in your name
- Set up an LLC to own your property
But which one is right for you?
Let’s have a look…
1. Own your property in your name
Buying a US property in your own name is straightforward.
You simply send a copy of your passport to your lawyers so they can register the property in your name.
Each year you must file a personal tax return in the US and pay tax on your rental profits.
(Don’t worry – I will put you in touch with a good accountant who will do this for you.)
This costs approximately US$ 450 per year plus any tax you need to pay.
But if your home country has a double-taxation treaty with the USA, you can off-set tax paid in the US against tax you’ve paid at home.
When you sell your property you will pay capital gains tax on the profit (currently 18%).
Again you can off-set this.
Finally, as a foreign investor you are subject to withholding tax (10%) on the fair market price of your property at the time of sale.
This is just to cover your unpaid taxes for the year to date.
So it will not actually cost you an extra cent.
You will get a refund for the whole 10% less any tax you owe.
And if your tax liability is less than the 10%, your accountant can apply for a reduced rate withholding certificate in advance of the sale.
2. Set up an LLC to own your property
Many people think owning property with an LLC will give them tax advantages.
It will not.
The Internal Revenue Service (IRS) treats LLC’s as sole proprietorships for tax purposes.
That means the LLC does not pay taxes and doesn’t have to file a tax return.
But the owners of the LLC are personally liable for taxes.
So you still have to file an annual tax return, pay capital gains tax and withholding tax when you sell.
Your accountancy fees will also be higher (around US$ 550).
That’s because your accountant has to file a form 1065 with the IRS for your LLC, as well as your personal tax return.
Another downside is, you may not be able to offset tax paid against your personal tax return in your home country.
Finally, it can cost up to US$ 900 to set up an LLC.
So why do people use LLCs to own property?
The main advantage is it reduces your personal liability.
You see, an LLC gives you ‘limited liability’ on the same basis as a corporation.
And as you know, in the USA when things go wrong people are quick to file law suits.
So there may be some advantage in this.
But a simpler solution is to arrange an insurance policy in your own name which gives you the same protection.
I hope this clears up a few myths for you.
Of course, the decision to buy with an LLC or in your own name depends largely on your personal circumstances.
So I always recommend you speak to a good lawyer and an accountant who can help you choose the best option for you.
If you’d like me to recommend a few good ones who can help – just reply to me.
Remember all our US investment properties are:
- Freehold with full warranty deed
- Already tenanted with pre-screened tenants
- Professionally managed by an experienced management company
Plus, with our Detroit properties you get all this completely free:
- Free Title Insurance
- – value US$ 499
- Free 1 year Property Insurance
- – value US$ 495
- Free 12 month Home Warranty
- – value US$ 700
Total value = US$ 1,694.
And unlike many of my competitors I don’t charge you a finder’s fee, an enabling fee or an arrangement fee.
In fact I don’t charge you any fees at all.
So if you’d like full details of what’s on offer in Detroit – just reply to me.
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