Real Estate deal with OPM and Taxes

[Lisa Leon]

My husband and I partnered with a friend to purchase our 1st deal. They put all the funds for the purchase and rehab cost. We agreed to split the proceeds after close. My husband and I did all the work and renovations. Should I open our own LLC so that the check be in the business name for tax filing purposes? He mentioned to discuss the taxes. Is it right that I have to pay any of his personal taxes for this deal? Can someone advice.

[Elizabeth Klingseisen]

@Lisa Leon I agree. You should definitely talk to a tax accountant like Chris said, but I am going to share how we (my mother and I have been doing this.) My mother, @Laura Alamery, has been investing for over 30 years.

When we use partner with someone who is investing money in the purchase and rehab (some time they invest 100%, other times we do 50/50,) we create an LLC just for that particular property. We also file a mortgage note and deed of trust to protect their investment (basically we give them a lien on the property.)

When we sell the property, the title company receives from us an agreement on how to disburse the proceeds. The title company handles the disbursements. If the funds go in one account, like hours, we have to issue a 1099 at the end of the year for the disbursement of their portion.

Since the LLC is in both names, separate tax return is prepared for the LLC with the investment, purchase and disbursement (our CPA charges us $300 per LLC for tax preparation.) The LLC is then dissolved after the property is sold.

I hope this helps for general information, but please consult your tax accountant, because it depends on your personal situation and State.

@Lisa Leon