Minor US citizen an LLC member?

Question

Hi,Sorry I have posted this in the more general forum as well and did not know how to change it to here. Me and my husband are Turkish academicians who are interested in buying a condo in Michigan, as we have ties in this country (lived here many years) and visit most summers for 1-2 months. The property is around 200K and it will be a cash buy. We also have a young son (9) who is a US citizen who may want to go to school here when he grows up. In order to pay for taxes and HOA, we plan to rent it in the remaining time. We will most likely hold the property for several years. I have also seen some link about some special right to scholars, so for info, we are here currently for a 1yr-sabbatical.The questions are:- We were advised to buy it under an LLC to limit our liability, if renting. Is there any benefit of including the son in the LLC (as a non-managing partner)? - We heard about FIRPTA, and the place will be less than 300K most likely when we sell, but I do not understand why the exception requiring the buyer using it as primary residence? Or other advice around that, suitable for our situation?- Anyway to get the lower homestead tax, if we will not rent (I understand not, if an LLC)?Any other advice?Thanks!

Dave Foster · Answer

@Ayse Yesilyurt, There is another exception to FIRPTA withholding. and that is if you do a 1031 exchange and purchase another piece of investment property with the proceeds from the sale using a qualified intermediary and the 1031 process. There are several specific nuances to the foreign seller completing a 1031 but that is another option that would be available to you.If you in any way treat the property as your primary residence then for federal tax purposes you will not be eligible to 1031 it and you will have to adhere to the clock of sec 121 which requires you to live in the property for 2 out of the previous 5 year period. And as a non-resident foreign national I don't believe you could claim this anyway ( good accountant who works specifically with foreign nationals will be your best friend right now). So your options really are limited to the 1031 if you want to defer tax on the gain.

Steve Vaughan · Answer

Found the below link for MI dept of licensing and regulatory affairs (LARA). Should be all the forms and instructions you need.An LLC in MI appears to be simple and cheap to establish. Whether you should or not is a matter for a competent attorney and tax person. I would be super surprised if they have an age restriction for members. Good luck!http://www.michigan.gov/lara/0,4601,7-154-61343_35413_35429-118816--,00.html

Dave Foster · Answer

@Ayse Yesilyurt, another potential option occurs to me. If you did indeed decide that an LLC (not disregarded) with it's own TIN and filing it's own tax return) was appropriate then that LLC is not a foregin entity and becomes the tax payer for the property and could do a 1031 on it's own standing. So there's some merit in still pursuing that avenue with your accounting professionals.

Steve Vaughan · Answer

Whether a minor is eligible to be a member or not is probably state-specific. Here in WA, my 2 minor sons are members to keep my wife and I under 50% ownership each. We have a hefty excise tax on each sale in our state. The magic number is 50% in each calendar year. Below that - no excise tax will be assessed.Check with the state where you plan to incorporate. The SOS website will probably list who can qualify as a member info for you. I was pleasantly surprised to find no age requirement in my state. Check yours and good luck @Ayse Yesilyurt!

Ayse Yesilyurt · Answer

Anyone know any attorney or tax accountant in Michigan, who knows regulations regarding foreigners` tax issues?

Ayse Yesilyurt · Answer

@Steve Vaughan could you please point to some more information about this, I could not find it in Michigan sites nor elsewhere really. Thanks in advance.

Dave Foster · Answer

@Ayse Yesilyurt, I agree. I do not think you can claim it as residence. However It's absolutely possible for you to do a 1031 as a foreign national. That is the answer to your tax deferral. We do a lot of foreign investor 1031s. But there are some specific things that complicate the process. The property is restricted to US property for US property. You must do a complete exchange or the full withholding must be taken out. And unless you can manage a simultaneous exchange you'll need to get a withholding certificate from the IRS.

Ayse Yesilyurt · Answer

Hi Dave, Thanks a lot. I wonder if foreigners can do a 1031 exchange? I think the house cannot even be our primary residence anyway, as foreigners, so no problem right?Hi Steve, thanks! That seems important. I will check for Michigan.