Tax Advantages Partnership?
Dan and his wife may get some local tax advantages if they purchase a historic home, but Dave doesn't see any advantages in going as partner with another couple.
QUESTION: Dan and his wife are looking at purchasing a historic home in their town. They are going to make the purchase with a couple of friends. How should they structure the partnership? Is there a tax advantage to buying a historic home?
ANSWER: There may be some local tax advantages, but there aren’t any federal tax advantages for purchasing a historic home.
You should never do a partnership – especially when buying a home. Renovating a historic home is definitely rewarding, but it’s hard enough taking it on by yourself. You don’t need another couple in the mix.
If you’re determined to have a partnership, then you need to set up an LLC – a limited liability company. That will insure that each of you own a portion of the LLC. It also means that if someone wants to sue you, they can only take the property – they can’t come after your personal residence or assets.
However, with an LLC if something happens to your partners, then you are still liable for all the debt by yourself. You have to buy life insurance and disability on the parties involved in the LLC as well as develop a partnership agreement to cover all the contingency issues. It’s a hassle, it’s a huge risk and I would not renovate a historic home with a business partner.