LLC and Foreign Investors
An LLC (Limited Liability Company) is the recommended entity for the holding of any long-term investment, particularly real estate. Through the unique structure of the LLC, most specifically the charging order protection, the investor is not only protected from any potential lawsuit from the tenant but also the property is protected in case the investor would have any unrelated lawsuit. In other words, if the investor would have a lawsuit due to a business failure or a bankruptcy or divorce, any potential judgment could not force liquidation of the property to meet the settlement.
There are some distinct advantages to the foreign national by utilizing an LLC for their investment property. Through proper tax reporting, the tax rate drops from 30% to 10%. The taxes paid in the United States will then be credited against any current tax liability in the home country. In addition, all foreign investors do need an ITIN number, which is most easily obtained in conjunction with the filing of the tax return.
You will need an EIN# (employer identification number) which can then be used to open accounts with NV Power and other utilities that are required to maintain the home prior to rental. The EIN # can also open a corporate bank account, which makes it much easier for the prospective tenant to pay their rents and for the investor to pay other on-going costs.
We recommend the LLC is set up prior to the purchase of the property. In this way, the title is put in the name of the LLC and makes it a seamless transition. The LLC can be set up to hold existing properties through use of a quit claim, but this requires much more paperwork, costs and time.
TAXES AND THE FOREIGN INVESTOR:
If no LLC or ITIN number, 30% yearly withheld by Property Management company cannot be recovered.
LLC or ITIN, W-9 issued, taxes return due 4/15 on net profit
If no LLC formed, 10% of total same amount held by Title Company and then needs to be reclaimed from IRS (15% capital gain due on net gain.
If LLC formed, tax return to be prepared 4/15 and 15% capital gain due on net gain.
With LLC, protected from personal or business lawsuit.
If no LLC, personally liable for any lawsuit.
Can apply to IRS directly 3-6 months or apply in conjunction with filing of LLC tax return
*Open up LLC prior to purchase of real estate
*Take Title in name of LLC
*Use EIN # (from LLC) to open up bank account
*Prepare tax return yearly. (Cost $300.00-$500.00 year and much more)
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