Looking for expert legal and tax advice -
Just found out I could potentially borrow in another country with a very low rate and have been thinking about how to put this opportunity to use while having a proper legal and tax structure.
Considerations are:
- Loan can be under my name but would require my parents (with local assets as collatoral) as the guarantors. Alternatively, my parents can borrow and loan me the money. I assume I can avoid to be considered a "security" if I am borrowing for own use.
- Given the very low rate I am simply considering paying off existing higher-rate mortgages on my rental properties, essentially "refinancing" at a lower rate. If there are left over I can put these to use in additional investments (rentals, bonds, etc).
- From a tax perspective I'm not sure how to properly structure to ensure I can deduct interest expense, as the foreign loan is considered general purpose and not secured by any of my US rental properties. I understand interest on personal loans are not deductible. If I establish a lending entity to lend to my rentals properties, will this do the trick? Also, as the foreign loan will be under my name, will I be able to "contribute" the foreign loan to this lending entity?
- From a legal perspective obviously want to avoid being designated as a security in the above case. I'm technically not raising money from other investors although my parents would have "skins in the game" as their asset will be collatorized.
- I would love to be able to compensate parents in some legally appropriate way such as a fixed monthly amount for the life of loan. But I am concerned this might lead to the "security" designation.
- I will personally bear FX risk but can hedge in many ways. As US rates rise I expect dollar to strengthen so I'm bullish in near-to-mid term outlook but longer-term is anyone's call.
Appreciate any input and/or referrals to subject matter experts.
Thanks in advance!
