Partnership structure question

[Chris John]

Hey all

Here's my and my brother's problem. We "share" 11 rentals. 5 in my name and 6 in his. We know it's 50-50, but the IRS doesn't agree. We have been looking at strategies to get this taken care of without taking a big tax hit. We have a great strategy that would entail making 2 separate LLC and paying 10k, but aren't sure it's worth it and may just "equalize" on the side. The values are close enough that even if we decided to "screw" each other it might be cheaper than funding 2 LLCs yearly, paying to set them up, etc. anyway, so neither of us is very worried about that.

Anyway, my question is for property #12 and so on into perpetuity. How should we do this? Should we set up an LLC? I'm wanting to make some offers on some properties and they're wanting to know how it should be held... and we just don't know. It's bad enough that we've gotten this far with the 11 properties being so reckless that it seems like we need to get this straightened up.

Thank you in advance for your thoughts and consideration on this!

[Katie L.]

@Chris John

You're right that there are a lot of moving parts and any action you take will affects several things.  Are the properties also in California?  If so, you may want to seriously think about property tax implications to any transfers as well, depending on how low the assessed value is on these properties so as to keep the Prop 13 value and not trigger reassessment.  Property taxes are often overlooked and a reassessment could add up to tens of thousands of dollars year over year.

Generally, you would not get a new basis when transferring to an LLC. Do each of you have trusts and estate planning documents in place? Not sure where in CA you're located, but if you want referrals for San Diego, let me know.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.