JV deals - do you put both entities on the deed and/or title?

Question

Good afternoon all,

Taking a quick census here for all the JV veterans as to whether you put both your entity and your JV's entity on (as say, 50/50 ownership):

a) Note deed itself

b) Property title if you take the property back (through foreclosure/deed in lieu, etc)

I've seen both, as there appears to be some confusion as to the best way to avoid IRS taxing the JV as a partnership.  Do you issue a K-1 to your partner or a 1099 at year end?

Assume anyone offering JV's has consulted with their CPA's and Tax Attorneys -- and I realize that most of you are not those yourselves -- just looking to see if there's a consensus, with the caveat that it may differ somewhat state to state (I'm in California).  Maybe @Brandon Hall has some thoughts?

Adam Adams · Answer

From my CPA, JVs do not require 1099. However, you want to be able to show money leaving the company and the best way to do that is to issue 1099. Otherwise it could create a red flag for the IRS to check out your books. So we do issue 1099s when there are distributions. For expenses, we provide a balance sheet as the JV gets to realize the expenses when they provide workout funds.

At AJA, we do not put the JV on any part of the chain of title. Our view is that this is a Lead / Passive relationship and putting the passive on the deed or assignment puts that passive partner in a decision making role. While we always consult with our partners while making the big decisions on what to do with the assets, we still maintain the decision making role in the JV. As far as proof of equity, our JV agreements creates a 50/50 equity split in the asset, so the need to put the JV on the title is not needed.

Adam Adams · Answer

My CPA just chimed in. By keeping the assignments, deeds, etc in the LLC of the lead, there is only one entity that owns that asset and no partnership is created. He says by adding the passive JV to the title or deed, you are creating an implied partnership and can be taxed as such.

Linda Hastings · Answer

@Bob Malecki  I like the idea of a personal property trust (own nothing, but control everything). Does it result in any added complexities though?

For example, how does having a personal property trust work at the servicing end? Do you have to have multiple accounts with your servicer, one for each personal property trust? If so, does this result in any extra fees from the servicer versus if you just have one account that all your notes are under? I'm assuming here that in the case where you have your LLC as the lead on the deeds/assignments (JV partner not on them), you would only need a single account with a servicer that all your notes would be under...but perhaps this is not the case.

Tyree Etheridge · Answer

@bobmalecki  would you be open to providing a copy of this agreement? I'm a newbie looking to jv to get some experience; however, I would prefer to know what criteria should be in a formal jv agreement.

Bob Malecki · Answer

I bought his course years ago and it includes all templates in MS Word. Bill has also been pretty responsive on emails with my dumb questions.

Bob Malecki · Answer

Just make sure it is properly authored/worded. I use Bill Bronchick who is located in Colorado. He's a real estate attny who knows trusts very well.

Linda Hastings · Answer

Thanks @Bob Malecki! Are there any other subtleties to watch out for when using a PP trust?

Bob Malecki · Answer

Hi @Linda Hastings technically each entity, with entity being a PP trust, would require a separate account with a servicer, but most servicers will group them for you under one login to view the assets. No additional fees from my experience.

Yes, if the loans were assigned to a single entity then that entity would have a single account with all of those assets under that account.

Bob Malecki · Answer

I use I use a well-defined JV agreement which outlines my role and my partner's role in the deal. We then use a personal property trust as the entity to hold the note in the trust and  each owner as co-beneficiaries at 50% each. The JV is a partnership and each member or partner in this case would get a 1099 at the end of the tax year.

Should we have to foreclose on the Note, then we would quit claim the property into a Land Trust and liquidate the property or could hold it as a rental.

JV deals - do you put both entities on the deed and/or title?

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