Is It Worth Setting Up An LLC To Invest In USA Property?

I am often asked questions about the possible tax advantages of investing in overseas property.

This latest one came from Peter who tells me that he has been interested in investing in the USA for some time but he is nervous about tax. He likes the idea of setting up an LLC with a friend however he is unsure what advantage this will provide.  

If you don’t happen to know what an LLC is, it is a Limited Liability Company.

An LLC is sometimes used to invest in property in the USA because people think it will give them tax advantages.

The bad news is – it won’t.

The good news is there are other advantages of setting up an LLC.

First though, it is worth noting that the USA’s Inland Revenue Service (IRS) will treat your one-member LLC as sole a proprietorship when it comes to tax. If your LLC includes more than one member it will be treated as a partnership.

So the LLC will not pay the tax, that responsibility will fall on you the owner and your partners if you have them.

So you will still need to file an annual tax return.

If you decide to sell your property then you will also need to pay capital gains tax and withholding tax.

Accountancy fees for this will be approximately $550. It can also cost up to $900 to set up the LLC. (Don’t worry if you need more advice on this our USA tax experts can help).

So what does Peter have to gain from setting up an LLC for his USA Property?

Whenever you set up a limited company you reduce your personal liability.

The same applies when you invest in USA property. This can be an advantage.

If anything goes wrong with your investment, for example if someone decides to sue you for something, (remember there is a strong claims culture in the USA) the company is liable rather than you personally. 

You can also sell your LLC rather than the property which can reduce the capital gains you pay on the sale. 

(If you are still unsure about your position regarding tax I can put you in touch with our accountant who can sort out any issues regarding your personal circumstances).

What are your experiences of tax on USA property? Please leave any comments you have below.

Kind regards

Loxley McKenzie
Managing Director


Disclaimer: Please note that the information in this article is of a general nature and should not be taken as a substitute for advice from a qualified tax advisor. If you need professional advice on property tax matters one of our advisors will be happy to guide you.