When purchasing an asset as part of a real estate investment in the United States, you need to address the entire issue of the relevant listing and registration – both yours and the property – to ensure your rights at the property and to address the ownership and taxation of your income and expenses during the investment period. Investors join the real estate investment activity through companies that specialize in investing in properties in the United States, and these, in turn, utilize the purchase via LLC – Limited Liability Company.
What is a LLC company?
LLC Company is a method of registration of companies in the United States. LLC is registered in the various states in US and accordingly, different LLC rules apply to different companies depending on the state legislation in which this company is registered. It is important to note that LLC a company for all intents and purposes and through LLC it is possible to carry out most of the commercial activity relevant to real estate or other entrepreneurship in the US.
Contrary to regular company or corporation, the owners of LLC are registered as members (not shareholders) and the company itself is defined as a partnership rather than an association or a company. Unlike a typical company, LLC is “organized” and not “incorporated” or “registered” and the registration of the articles and rights therein is defined in the “Operating Agreement”.
LLC has several characteristics:
- For the purpose of taxation in the US, LLC is defined as a “transparent company” – the tax mechanism (on revenue and recognition of expenses) is similar to that of a US individual. Should company’s partners choose, they can decide that the company will be considered as a regular corporation (C-Corporation) for tax purposes.
- The registration and ownership mechanism of LLC companies is more flexible and simpler than companies and corporations.
- There is no limit to the number of partners in the LLC and there is no obligation that the owners or partners will be residents of the United States.
When compared an ordinary company or corporation, there are a number of interesting advantages to LLC, which appeal to real estate investors in the United States.
Among the advantages of an LLC there are:
- Separation between the liability of the company and its owners – Like a limited liability company, LLC allows the limitation of liability and legal separation between the owner and the company, so that the owners cannot be sued personally.
- Corporate tax and then taxation of dividends and profits – LLC is a transparent company that imposes a tax liability similar to tax on individuals – a single payment of taxes on income and the ability to withdraw profits without additional tax.
- The Company has the ability to reduce the rate of taxes when selling the property through the Company.
- In a number of countries in the United States, LLC can be registered with a single owner
- LLC can have an unlimited number of partners and owners and are not limited in their geographical location
- Any real estate property may be owned by a separate LLC company, thus limiting the level of liability and protection from claims to asset value only, without the claim or damage being applied to all other assets.
During the process of purchasing the property, the group members are registered as partners in an LLC company. When the date for the payment of taxes is due, the taxes will apply only to the share of each partner according to the amount of his investment and the profits / expenses / losses from the activity.
Another possibility of registration is through the Series LLC, which is a special model of an LLC that allows the various properties in different series, so that each property is separated in terms of taxation and liability from another asset.
LLC is a very flexible and convenient mechanism especially when investing in real estate, whether it is an individual activity or as part of a group of investors or working with real estate investment companies. The flexible mechanism of the LLC company enables easy registration for commercial activity.
Since the issue of taxation is very important in the US market, it is crucial for Israeli investors to clarify the significance of working with LLC in all aspects of taxation – both in Israel and in the United States.