Setting up a deal. Want to maximize tax benefits.

[Bruce Clark]

My partner and I currently own and operate an LLC that owns and manages several residential rental units.

We were recently approached by an individual who wanted to invest in real estate. We formed an agreement that my partner and I would find a property that met our agreed upon criteria and get the property under contract for our agreed upon price. The investor would provide cash for the down payment. We would hold the property under a newly formed LLC with the our existing LLC being a 50% owner and the investor being a 50% owner. Also the new LLC would pay our existing LLC to manage the property.

My question what/how should I set the management agreement up between the LLC's to minimize the taxes owed. If I simply create a contract between the new LLC and the existing LLC for management, will the tax rate be higher than my standard capital gains rate? Is there another option to achieve my goal but reduce the tax rate? What am I missing?