Advice on Joint RE Ownership

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Tech
Posts: 68
Joined: Wed Jan 24, 2018 1:31 pm

Advice on Joint RE Ownership

Post by Tech » Sat Aug 11, 2018 1:07 am

I need advice on Joint RE ownership.
A, B , C want to buy a property value at $1M.
How does each one claim their portion of mortgage interest deduction?
Do they need to open put the property under a certainty of entity ?

A has 50% ownership
B has 30% ownership
C has 20% ownership

Grt2bOutdoors
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Location: New York

Re: Advice on Joint RE Ownership

Post by Grt2bOutdoors » Sat Aug 11, 2018 1:25 am

I hear biggerpockets.com is the forum for real estate investing. You don’t want a joint tenancy title since you are each “separate” with various ownership percentages. I haven’t done this, but perhaps having an LLC established, have the companies charter and by-laws spell out the ownership rights, have the LLC pay the interest, taxes, principal and any associated expenses. At end of year, have LLC issue K-1 relecting income/expense on pro-rata basis for each partner. Seek competent counsel to set this up.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

123
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Joined: Fri Oct 12, 2012 3:55 pm

Re: Advice on Joint RE Ownership

Post by 123 » Sat Aug 11, 2018 1:39 am

If A, B, and C are jointly responsible for the loan it could make a significant impact upon their individual abilities to get other loans that they wish to get on an individual basis. A lender could well decide that the entire $1 million loan should be held against the credit worthiness of each of them since they could each be responsible for the entire loan amount if the others don't pay. That $1 million hit against the individual credit worthiness could impact their individual abilities to secure loans that they might want individually later on for their own separate properties.
The closest helping hand is at the end of your own arm.

Grt2bOutdoors
Posts: 19506
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Advice on Joint RE Ownership

Post by Grt2bOutdoors » Sat Aug 11, 2018 1:49 am

123 wrote:
Sat Aug 11, 2018 1:39 am
If A, B, and C are jointly responsible for the loan it could make a significant impact upon their individual abilities to get other loans that they wish to get on an individual basis. A lender could well decide that the entire $1 million loan should be held against the credit worthiness of each of them since they could each be responsible for the entire loan amount if the others don't pay. That $1 million hit against the individual credit worthiness could impact their individual abilities to secure loans that they might want individually later on for their own separate properties.
Agree, but a bank would want a statement indicating that ownership is indeed “joint”, meaning equal shares. The OP is giving varying percentages, meaning less than equal. OP should insist on having competent legal counsel draft up an LLC. You don’t want to co-mingle investment property with other personal property or even give the perception that it’s anything other than an investment.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Tech
Posts: 68
Joined: Wed Jan 24, 2018 1:31 pm

Re: Advice on Joint RE Ownership

Post by Tech » Mon Aug 13, 2018 12:02 pm

Thanks everyone. Will consult with RE attorney for sure on this.

SouthernCPA
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Re: Advice on Joint RE Ownership

Post by SouthernCPA » Mon Aug 13, 2018 4:44 pm

Mortgage interest can be allocated based on ownership %. This may just be a manual calculation rather than taking what comes on the 1098 at the end of the year. Whether the interest is deductible on Schedule A will depend on the use of the property and each individuals filing situation.

If it was me, I'd just set up LLC with operating agreement and issue K1's to allocate interest/property tax at the end of the year. (Assuming this isn't a rental property, most expenses will be non-deductible)

Make sure everyone in the deal has as strong of a financial footing as you think they do. If things go south, the banks go after everyone and the "deepest pockets" partner usually gets hit the hardest, regardless of who is on the hook for what.

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