Joint Ownership, Funding & Tax Implications

[John Carr]

Hello all!

I have some questions regarding joint ownership with a non-spouse family member. I will try to be as succinct as possible (while also explaining in full the situation), so here goes...

My dad is interested in diversifying his portfolio, and putting some of his money in real estate - specifically buy-and-hold. He has approached me about doing a joint venture, as I have a couple properties that I currently rent out, and has offered to fund 100% of the deal if I would be the one in charge of all aspects of the property (finding the property, running the numbers, hiring a property manager, paying the taxes & insurance, and so on). He also wants to put both of our names on the title and deed as co-owners. So my concerns are as follows:

If he puts up all of the money on the deal, and yet both of our names are on the title and deed, will the IRS look at my interest in the house as a gift from him? I know there are various ways to co-own a home with a non-spouse (joint tenancy, tenancy-in-common, etc.) - would any of these have different tax implications? What are some options here, and does anyone have any other ideas?

I know I can take out a loan to cover my half (or whatever portion) of the cost of the property, or I can treat my share of the property as a loan from him which I could pay back from the income generated from the property - however, I am trying to keep my debt-to-income as clear as possible, so let's eliminate that possibility from the discussion. Also, I know there may be some who will talk about the perils of joint ownership with a family member (which I completely understand) but I am merely looking for a clinical, dispassionate and scientific approach to this issue.

Thanks in advance!!!

[Charlie Fitzgerald]

Talk to a CPA and A RE Attorney...having said that, here is my "neither of those" opinion (as I have done the same thing with family). There is no gift in capitalizing a business entity. So, providing you and your father are going to establish a business entity (you should), then there are no IRS gift issues to worry about. His infusion of capital is simply that...and infusion of capital. Your operating agreement for your entity (LLC most likely) will outline the agreement you and he have as far as member responsibilities, cost share, profit splits, etc. So, sit down with a CPA and a RE Estate Attorney with your Father and hammer it out. His money is going to be the startup capital and he will then take a passive investor role and receive whatever agreed to return you and he agree to. Your management of the business will be your value contribution to the business and you will be compensated in whatever manner you and your father agree to. If a part of that compensation (profit share) by agreement is retained by the entity until it is sufficient to replace 50% of the initial capital provided by your father, then so be it.

Hope this helps.  The key to success here is making certain that you and your father have all cards on the table and that all expectations of both of you are discussed openly and then codified in a suitable agreement by the Attorney.  Once you enter the agreement, you each become business partners first as it relates to business matters.  You remain father and son as it relates to family matters.  Keeping each of these entirely separate is the key.