General Partnership or LLC

[Jon Mason]

For purchasing properties (buy and hold) with a business partner (not my spouse) is a general partnership or an LLC the better choice?

I've always thought an LLC was the way to go, but we were chatting with a lawyer and they mentioned that an LLC would cause us to have to pay Franchise and Excise Tax of 6.5% plus an additional $2500 for every $1M in equity. They advised us to consider a General Partnership with an insurance policy instead. We are in Tennessee.

I've read that in a GP, you are unable to take advantage of depreciation if you are involved in the management or operation of rental properties, so that would be a pretty big hit depending on how that works in practice.

What is the best business structure for minimizing personal risk and maximizing the tax benefits of owning real estate?

Thanks for any help you can provide!

[Eamonn McElroy]

@Jon Mason

There are a few different exemptions from the TN F&E out there even if you have an LLC. The FONCE is a popular one for LLCs holding rental real estate that are family owned. You may not qualify for it if you have partners. Good to run by your CPA.