Using a family limited partnership for property

Q. My family is thinking of buying an investment home. Do we need to buy it with a Family Limited Partnership, and how would that work?
— Wondering

A. Using a Family Limited Partnership (FLP) is one option.

Family Limited Partnerships are used effectively as an estate tax planning tool if you are planning in the future to gift out interests to family members, said Ken Bagner, a certified public accountant with Sobel and Co. in Livingston.

“The interests can be discounted to reduce the effects of estate taxes which still remain in New Jersey on any estate over $675,000,” he said. “The Family Limited Partnership also provides the flexibility to allocate profit, losses and cash flow generally as you deem fit inside the partnership.”

Bagner said the entity is easily set up and you would need to file an annual partnership tax return on behalf of the entity.

But if you need to borrow to buy the home, a partnership may make it difficult.

“The one issue you may encounter is the ability to find a qualified lender to loan you funds for your purchase if you are not buying the property outright,” Bagner said. “Some lenders shy away from loaning to a family limited partnership.”

Email your questions to ask@njmoneyhelp.com.

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.