Tax issue with mortgage option

General Real Estate Investing
1

I’d like some advice on the following situation: I’m in a Texas general partnership (no income tax in Texas) with my BIL. We plan to start rehabbing houses and I have a good one in front of me now. Our best financing option is a mortgage with very low closing costs & no points. The catch is that the lender wants the borrowers to be individuals (not the partnership) and wants the individuals to have the same home address (which we don’t). One of us could get the mortgage but then the property is in our name and (I’m assuming) all the taxable income belongs to that person also. The savings from the mortgage are enough to eliminate hard money and the other mortgages I’ve looked at (3k-5k)

We have already set up some additional credit for rehab funds in the partnerships name which seems to further complicate. Is there some structure work that can be done to shift the gain to the partnership? If not, it seems that the fair thing to do is distribute the estimated incremental tax liability to the borrower before we split the profits. Any other ideas???
Thanks

2

One person can secure the loan, but both people sign the note and each will collect money from the sale of the property. When the title company does the paperwork, you will inform them of how you want the proceeds to be split when the house is sold for IRS purposes. Plus after you buy, you can always QCD the home to the corp you both may be partners in. Check with the title co. it maybe able to do it the same day you close.

I buy with several different investors. I provide the financing. We are always both on the note and title, just financed in my name. I then always QCD my name to my corp holding co for tax reasons. Since i invest with over 10 different guys, i do not have corp for each guy. I simply shift my share to my co. name.

3

Thanks for the response.

Not sure I follow the QCD mechanics. If I have a mortgage, wouldnt that prevent me from transferring to the partnership (since it’s not clear title)?
Thanks

4

You can Quit Claim Deed (QCD) your house with a mortgage in place in your name.

5

Would this work:

the partnership loans me the down payment, I buy the property and deed to the partnership in satisfaction of the loan (i.e no gain for me personally), then the partnership sells for profit & gain is split on ownership.

Also why quit claim vs… warranty deed? Would the quit claim impact the title insurability later?
Thanks