NASSAUSUFFOLK

An attorney suggested to clients that they put their principal residence in an LLC or LP for asset protection.  the attorney also said that he's a tax consultant.  The clients are young with a young family. 

If they put this into a LLC or :LP do they lose their $500,000 gain exclusion? Do they lose the mortgage interest and real estate tax deduction?

I found that they won't lose it if it's an LLC in as a disregarded entity but I have not found that for a partnership LLC or LP.

Thanks,

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Michael Rubinstein
Michael D. Rubinstein CPA, PC
Woodbury NY
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Michael,

Your question is interesting.  First, identify the jurisdiction of the property.  NYS is one of the 26 jurisdictions which recognize ownership via Tenancy by the Entirety (TBE).  And as a result, assets owned as TBE are considered held by the marital unit and thus already protected from the third party creditors of one spouse.  But in these circumstances, are both spouses exposing themselves to the same risk?

Furthermore, considering that NYS is a Partial-Bar jurisdiction, it would be important to identify the motivation and purpose behind the Asset Protection plan. Below please find a link to an article I had written in 2003 which address the body of law described in your topic.  Although it discusses these asset protection issues in a tax context,  it should also provide you with some insight about how property ownership is defended through proper navigation of the debtor/creditor statutes.  And hopefully, will give you some ammunition to properly determine if the holding company suggested by the Attorney in your fact pattern is actually the best strategy for your client.

Feel free to call anytime if you'd like to speak.

http://litaxlaw.com/dl/SuffolkLawyer_Oct2003.pdf

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Eric Morgenthal, Esq., CPA, M.S. (Taxation)
LAW OFFICE OF ERIC L. MORGENTHAL, PLLC
150 Broadhollow Road,
Melville, NY 11747

Original Message:
Sent: 03-10-2016 19:55
From: Michael Rubinstein
Subject: Principal Residence in an LLC or LP

An attorney suggested to clients that they put their principal residence in an LLC or LP for asset protection.  the attorney also said that he's a tax consultant.  The clients are young with a young family. 

If they put this into a LLC or :LP do they lose their $500,000 gain exclusion? Do they lose the mortgage interest and real estate tax deduction?

I found that they won't lose it if it's an LLC in as a disregarded entity but I have not found that for a partnership LLC or LP.

Thanks,

------------------------------
Michael Rubinstein
Michael D. Rubinstein CPA, PC
Woodbury NY
------------------------------

Michael,

I had researched the 121 exclusion related to residence held in LLC. I came to conclusion at the time that 121 does not apply to residence held in LLC, at least being taxed as a partnership. In my case it was husband and wife that were members of  LLC. I pulled the file for the client but I could not find the citation or reference that brought me to that conclusion. I have no recollection of SMLLC as disregarded entity related to 121.

You might want to research this to be sure. Why not use trust?

Good luck.

Bob S

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Robert Sick
ROBERT SICK, CPA PLLC
Patchogue NY

Original Message:
Sent: 03-10-2016 19:55
From: Michael Rubinstein
Subject: Principal Residence in an LLC or LP

An attorney suggested to clients that they put their principal residence in an LLC or LP for asset protection.  the attorney also said that he's a tax consultant.  The clients are young with a young family. 

If they put this into a LLC or :LP do they lose their $500,000 gain exclusion? Do they lose the mortgage interest and real estate tax deduction?

I found that they won't lose it if it's an LLC in as a disregarded entity but I have not found that for a partnership LLC or LP.

Thanks,

------------------------------
Michael Rubinstein
Michael D. Rubinstein CPA, PC
Woodbury NY
------------------------------

Thanks Bob.  I'm trying to get more information from the client.

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Michael Rubinstein
Michael D. Rubinstein CPA, PC
Woodbury NY

Original Message:
Sent: 03-12-2016 08:03
From: Robert Sick
Subject: Principal Residence in an LLC or LP

Michael,

I had researched the 121 exclusion related to residence held in LLC. I came to conclusion at the time that 121 does not apply to residence held in LLC, at least being taxed as a partnership. In my case it was husband and wife that were members of  LLC. I pulled the file for the client but I could not find the citation or reference that brought me to that conclusion. I have no recollection of SMLLC as disregarded entity related to 121.

You might want to research this to be sure. Why not use trust?

Good luck.

Bob S

------------------------------
Robert Sick
ROBERT SICK, CPA PLLC
Patchogue NY