Ownership Structure of US Real Estate -

WOW. Overwhelming amount of information here. I will keep looking but will ask. My wife and I bought a piece of dirt in MT three yrs ago free and clear. The title reads with both our names on it. We have since built a house on it. I am close to getting a deal done on another piece of bare land. I have been poking around and notice all shorts of different ways peopple own there land there. Trusts, Living Trusts, Profit Share Plans, Revocable Trusts, Companies structures of all sorts. What is the ideal way to own real property in the US. OR just owning it our names the way to do it and we are wasting time structuring any other way.

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david ingram replies:

I should tell someone in who chairs an international symposium onXXXXXXXXXXXX how to register his property? Hmmm! Session Chair:xxxxxxx xxxxxxx, xxxxxxxxxxxxx xxxxxxxxxx International
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In my opinion, you and your wife should buy the property in your ownnames in joint trenancy with right of survivorship. It is the easiestto do and by far the easiest to manage. If one of you passes, theother gets it. There can be an estate problem but there is an estateproblem if it is in a corporation, LLC, LLP, or living trust.

Canada does not recognize most of the other methods anyway.

Save lawyer and accountant bills by buying it yourself. Just remember,if it is for your own use, you can do anything to the property. Ifthere is any intent to rent it or to fix it up to sell to others (i.e.buy, fix up and sell), 'you' an NOT do any work whatsoever on theproperty. In yor position, you can NOT chance
being banned from the US because you were cutting the grass at a rentalhouse in Whitefish. The USCIS or Homeland Security officer does notusually catch you. You get turned in by a irate tenant or adisgruntled neighbour or a local handyman who did not get the job.

Good Luck!
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David Ingram's US/CanadaServices
US/Canada/MexicoTax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 Fax (604) 980-0325
[email protected]
www.centa.comwww.david-ingram.com

Jan 6, 2008.

Rentals inthe USA.

QUESTION that came to me from ASK ANEXPERT at www.jurock.com

We just purchased property in Spokane Washington( a 4 plex apartments)
We plan on renting out 3 of the units and keeping one. I was told bythe border crossing inspector,
that I have to hire a rental agency in order to rent out the apartments.
and I also have to have a property manger full time..
We will be at our apartment approx 2 times a month..
So we do not need a property manager.
Do you know if this true,, or please direct me to the correct personthat would be able to help me.
Thanks for your time.
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david ingram replies:

You need a property manager if you do not want the strong possibilityof going to jail for a few days before being deported and then notallowed back in the USA. For a story about US Immigrations hell for aHoliday Inn Manager, try
http://apostille.us/news/local_holiday_inn_express_manager_in_jail_on_immigration_charges;_husband_fights_for_her_return.shtml
or how about a married woman's ordealin Georgia for a traffic violation at
http://www.canada.com/ottawacitizen/news/story.html?idf4f1d2fb-07ae-4560-8f6c-703acf8146fb&k0

Crossing the border when you have anad running to show the premises and saying you are going down to spendthe weekend in your holiday home (i.e lying to the HOMELAND Securityofficial) could result in seizure of your vehicle and a ban for up to10 years under their ER (Expedited Removal) process. In other words,it is more serious to lie to the guard at the border than it is to dothe work.

You 'could' actually show the property for rent, but you can NOT writeout a contract for rent or collect a single rent cheque (check) or cashfor rent in the United States. There is nothing new about this. Thefirst time I ran into it was in 1972 or 1973.

If you are physically there, you can NOT cut the grass, shovel thesidewalk, paint or decorate or repair or fix or remodel or improve ortake out the garbage for any part of the rental property.

You can paint and clean your own unit if it is NEVER rented or intendedto be rented. You can not paint and clean up getting the property readyfor rent so DO NOT make the mistake of thinking you can live in one,clean it up and remodel it and then rent it out and do the same foranother one and then another one and another one. If you do this andone of your tenants (who maybe doesn't like you because you evictedthem or told them to turn their strereo down when you happen to be intown or for any other reason) read my website, (or the uscis website)he or she would find out that you can NOT do this stuff and could phonethe Homeland Security office or write an anonymous letter and you couldbe arrested in November 2008 for something you did in December 2007.

This may seem unreal, but in US terms, working without a visa is justas serious in law as the spontaneous robbing of a convenience store andthe penalties can be worse. Think of those nightly news shows with 28illegal Mexican or Guatamelan citizens being stuffed into Paddy wagonson the Arizona border. This is not a racist comment but with theMexican illegal immigrants, bing rounded up and shipped back across theborder is a way of life with no social stigma. For a nice clean livingCanadian, being thown into an immigration detention cell for takingmoney for rent is a devestating experience. In one case, a mother andher son were thrown into jail for 5 days in Phoenix when she went toPhoenix from White Rock BC. Her husband owned 18 units and HAD aproperty manager. Unfortunately, he also died in the arms of thatfemale property manager and his widow then fired the property managerand she and her 20 year old son went to Phoenix to collect the rent andhire another property manager.

The property manager (who knew the law as everyone in Arizona does)phoned Homeland Security who showed up and arrested mother and son andthrew them into the notorious Phoenix Immigration hell with some 300other illegals. To rub salt into the widow's wounds, the propertymanager ended up with the property because she was a second mortgageholder on the property and the property fell into default because ofthe widow's cash flow troubles, largely because she could not go toPhoenix to hire another property manager.

For instance, for 'you', this kind of arrest could result inimprisonment for a usual five days in a US immigration jail until youposted $5,000 bail each and then being banished from the US for five toten years.

It does not stop there. This type of conviction would stop you gettingon an airplane which stopped in the USA on the way to Mexico. AND, under new US laws that have been proposed but not yet actually put inplace, the arrest and banning would stop your Nov 6 trip to Cancunbecause people in this position will not even be allowed on commercialairliners that are flying over any part of the US. To get to Cancun,you would have to fly from Calgary or Vancouver to London England andthen back to Mexico City and 'then' to Cancun and reverse it to gethome.

This may be overkill but 'You' are / were lucky that the inspector gaveyou the correct advice BEFORE you put your foot in it.

By the way, for income tax You ALSO HAVE TO FILE A 1040NR US TAX RETURNWITH A SCHEDULE E AND A SCHEDULE 4562 EACH. Then the same income getsput on Schedule T776 of your Canadian return. If you have paid tax tothe US, you will claim it as a credit on Canadian forms T2209 and T2036.

David Ingram's US/CanadaServices
US/Canada/MexicoTax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 Fax (604) 980-0325
[email protected]
www.centa.comwww.david-ingram.com

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The second dealt with making your personal mortgage interest in Canadadeductible and the Overs, Evans, Lipson and Singleton tax cases and GAAR

David Ingram's US/CanadaServices

MortgageInterest as a Deduction in 2008 =96 dealing with GAAR

I firstconceived of this method in 1975/76 when a client of mine had a rentalduplex and had a tenant who was injured in a car accident. Itwas at the time of the changeover from private insurance to ICBC andthe injured single mother tenant was waiting for an insurancesettlement.

My clientallowed his tenant to stay in the half duplex for more than a year andto stay afloat him self, he borrowed money to pay the duplex bills.When doing his 1975 tax return, we deducted the interest paid on theloan because the purpose of the loan was clearly to fund the rentalduplex.

When hefinally got his cheque for more than $5,000 from the tenant, it wouldhave been all over if he had just paid the loan off and we had notthought about it. But my client, bless his soul, phoned and asked if hehad to pay off the loan (which was deductible) or could he use themoney for another non-deductible purpose.

My answer,after thinking about it for a day or so, was that he could us e the$5,000+ for any purpose he could think of. At the sametime, I said this, I was also writing something for the North ShoreCredit Union and put my =91new=92 method of making the mortgage interestdeductible in this report which they then published as part of anadvertisement in the North shore News in (I think) November, 1976.

I expandedit and it was next published by Hancock House Publishers in myInvestment Guide in 1979, 1980 and 1985 and 1991 and BC Businessmagazine in 1979. Sometime in there, the Ontario Dental Associationalso ran it in their magazine. It then became part of the internet andcan be found in the March 1997 and November 2001 newsletters.

I was prettyheavily involved in the Federal Conservative Party (ranfor the North Shore Nomination in 19780 and am proud to say that we gotmortgage interest as a tax deduction on the 1979 federal Income taxreturn.

Unfortunately,Joe Clark, the Prime Minister at the time, did not count thenumber of yes votes and lost a non-confidence motion on Dec 12, 1979,and on Feb 18, 1980, Pierre Trudeau was re-elected as Prime Ministerand even though there was a 4-page form and a line on the T-1 Generalthat year, the deduction was killed retroactively by the liberalgovernment and we no longer had this benefit for all withoutmanipulating the paperwork.

In 1981, FredSnyder was running a series of seminars and teaching my methodto a lot of different groups. In one seminar, he taughtit to Realtors, McCauley, Nicolls, Maitland and Company and the managerFraser Smith wrote Fred a letter thanking him forexplaining the methods. In 1985, Fraser Smith thanpublished the SMITH MANOUVRE which explains the method in great detailand at the time, VANCITY Savings Credit Union was featured in the bookand was very good at setting up the method.

Then on Oct27, 1988 John Singleton had approximately $300,000 in his lawyer=92scapital account. He got permission to take the $300,000out (it was his but was being used as security in his law practice). He used it to buy a house and then used the house as security toborrow $300,000 which he then put into his capital account; this wasall done in one day. Of course, since the money in theaccount was now borrowed for business purposes, he deducted theinterest on his 1988 and 1989 returns and the Tax Department turned himdown. He appealed and lost in the Tax Court of Canadabut won in the Federal court of Appeals. The CRAappealed to the Supreme Court and in October 2001, the Supreme Court ofCanada found in favour of John Singleton in a 5 to 2 decision.

This casehas now been quoted and cited in many other cases. InOVERS 2006 TCC 26, Mr Overs paid back a shareholder-loan,which would have been included in his income. By doingwhat he did, co-incidentally, the interest expense was made deductible.

Mrs Overs borrowed funds to purchaseshares of his holding company at their fair market value. However,Mr Overs did NOT use a 73(1) rollover as Lipson did. Therefore,no capital gain was realized but the attribution rules in section 74(1)worked to transfer the interest expense on the wife=92s borrowed funds --back to him.

Judge Little turned down the CRA=92sclaim that tax benefits arose from this series of transactions. Thetaxpayer followed the Income Tax Act in repaying his loan andtransferring the shares to his wife. Justice Little ruled that thetransactions were NOT avoidance transactions and therefore GAAR did notapply. Judge Little ruled that none of the transactions could beconsidered =93abusive tax avoidance=94.

And JudgeBowman ruled in favour of Evans (2005 TCC684). Judge Bowman found there were no avoidancetransactions in what could only be described as a super complicated andvery sophisticated series of business restructurings that ended up witha former shareholder receiving cash by using specificrules in the Act, including sections 85

(rollovers), 110.6 (capital gainsexemption), 112 (tax free inter-corporate dividends), 74.5(attribution) and ss. 84(3) (deemed dividends).

Judge Bowman assumed that there =91were=92avoidance transactions. He then dealt with them on anindividual basis to decide whether the avoidance transactions were=91abusive=92. His final decision was that provisions of theIncome Tax Act operated as intended and there could not be any abuse.

However, he was not of the sameopinion with the LIPSON Family who lost in Lipsonv. The Queen, 2006 TCC 148

Mr Lipson owned a profitable businessand:

1. The Lipsonscontracted to buy a home in Forest Hills in Toronto
2. Mrs Lipson tookout a demand loan to buy share in the family business from her husband.
3. The shares weretransferred to Mrs Lipson as a section 73(1) rollover
4. Mr Lipson usedthe funds to buy the house
5. They =93both=94 tookout a mortgage on the house to repay the demand loan

Judge Bowman used the Section 245 GAARprovisions to rule that the Lipson family was guilty of Gross Abuse ofthe Tax system. Perhaps, if they had a business reasonfor the loan or had not used the Section 73(1) tax free rollover, hewould have found in their favour as he did with the EVANS 2005 DTC 1762case. In the LIPSON case the wife=92s borrowing did notput income in her hands and it was unclear who had paid the interest.

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