Investing in US . . .Structuring assets

[investornewbie]

I have been doing some research in the entity structures of how to hold US rental properties as a Canadian investor who is a resident of Canada.

I currently have a few SFH rental properties in the US and I wanted to expand my holdings substantially. Personally, I`m familiar with Net income basis of declaring rental income for US tax returns. However, in terms of both liability and tax purposes I would like to structure my properties in a more efficient way rather than dealing with this later when I realize I have too many properties on my hands(hopefully!).

I know the costs of incorporating are high and the annual fees for filing are costly as well. However when, in terms of NOI or # of properties is this justified? Are the expenses that substantial?

 

[Thomas Beyer]

QUOTE (investornewbie @ May 20 2010, 10:16 AM) I have been doing some research in the entity structures of how to hold US rental properties as a Canadian investor who is a resident of Canada.

I currently have a few SFH rental properties in the US and I wanted to expand my holdings substantially. Personally, I`m familiar with Net income basis of declaring rental income for US tax returns. However, in terms of both liability and tax purposes I would like to structure my properties in a more efficient way rather than dealing with this later when I realize I have too many properties on my hands(hopefully!).

I know the costs of incorporating are high and the annual fees for filing are costly as well. However when, in terms of NOI or # of properties is this justified? Are the expenses that substantial?
also consider 1031 exchange possibilities within a corporation, i.e. sell one asset for a gain and if proceeds are re-invested within a 6 months period no taxes are payable on gain until this new asset is sold !

We use this structure: Canadian LP owns shares in a C Corp. C Corp hold LLCs, one LLC per building. it is NOT the best for taxes, but it also means no US taxes are payable or to be filed by Canadian investors, only by the LLC or C Corp (assuming a gain)

BUT: those taxes are higher on exit and annual filings cost money too.

The lowest tax is paid if held personally .. but also highest liability !

 

[investornewbie]

QUOTE (ThomasBeyer @ May 20 2010, 03:59 PM) also consider 1031 exchange possibilities within a corporation, i.e. sell one asset for a gain and if proceeds are re-invested within a 6 months period no taxes are payable on gain until this new asset is sold !

We use this structure: Canadian LP owns shares in a C Corp. C Corp hold LLCs, one LLC per building. it is NOT the best for taxes, but it also means no US taxes are payable or to be filed by Canadian investors, only by the LLC or C Corp (assuming a gain)

BUT: those taxes are higher on exit and annual filings cost money too.

The lowest tax is paid if held personally .. but also highest liability !


Thanks for the info on the 1031, that was another important point why I was interested in a corporate structure.

Its interesting that you brought up LLC`s ,this what I was initially considering, but when I researched them the CRA recognizes them as a sole proprietorship so the result is being taxed at your personal rates. So does holding them in a C-corp effectively eliminate this?

Also, how are the taxes applied? If there is a gain within a LLC, Do you have to pay taxes with the LLC, then have to pay taxes with the C-corp?