I Should Always Own Property in an LLC, Right? Not Always.

Most investors purchase property in an LLC for tax and liability protection.

It is straightforward, widely accepted, and every state recognizes LLCs, albeit each with its own quirks.

Besides LLCs, there are LPs (limited partnerships), LLPs (limited liability partnerships), LLLPs (limited liability limited partnerships), and corporations. Each structure comes with its own tax treatment and strategic considerations.

Typically, the property-owning entity is an LLC formed either in Delaware or in the state where the property is located.

Why didn't they structure this as an LP!?

But if there will be Canadian investors, the LLC structure becomes a problem.

While the US treats an LLC as a pass-through entity (meaning the LLC itself does not pay tax only the investors do), Canada sees it as a corporation. That means Canadian investors can get taxed twice: once at the entity level, and again when they receive their share of profits.

There are workarounds, but they tend to be complex, expensive, and not for the faint of heart.

A limited partnership, however, is generally treated the same way in both the US and Canada. That makes it the preferred structure when Canadian investors are involved.

Disclaimer: This post is for informational purposes only and is not tax or legal advice. Always consult with your advisors before structuring cross-border investments.