I am going to joint venture with a foreign investor on an apartment complex in the U.S. I am a U.S. national and the foreign investor is not. We will have 50/50 profit and loss share. What would be most tax efficient way to set up this transaction?
All advice will be appreciated!
Form an LLC.
Recommend you maintain a majority interest in case things don’t work out.
Legal and tax planning
I’d rec you talk to a tax lawyer to get current tax-wise info and have him/her also draft you an agreement to protect both of you in case things don’t go as well as hoped.
Talk to a tax attorney
You should definitely speak with a tax attorney. It’s likely that the U.S. based portion will be treated as would another other real estate investment, but that your foreign investor will be subject to other regulations and currency exposure.
I live in London and pay taxes in the USA as well as the UK. In other words, I have some experience with cross boarder issues.
How you own the property in the USA will depend on a few things. First, you want the right structure and the right agreements as if both investors lived in the USA and paid taxes in the USA. Liability protection, management agreement between the parties so everything is clear. Assume that someone gets married and then later gets divorced so their assets are split. Will the agreement be clear so when the ex-spouse becomes the new partner things still work. Or one of the two investors is run over by a bus so they no longer can do the work or make decisions. What happens then.
The tax status of the overseas investors is largely their problem. You want a clean transaction. Expect that there will be extra paperwork when you go to sell the property. More so if the seller is not registered with the IRS. Not like it would stop things. Just that there could be some serious cash withheld at the close until the tax bill is paid.
The overseas investors should get independent tax advice.
A tax attorney, not a CPA, will be able to deal with all of the above.