As an LLC owner, you may have a variety of reasons for wishing to transfer property to an LLC. For example, you may decide to transfer property to an LLC for the purposes of asset protection, or you may wish to do so on your accountant's advice, as property transfers may sometimes have particular tax consequences which may, depending on individual circumstances, be to your benefit.
The transfer of property to an LLC means you are placing the title of that particular piece of property in your LLC's name so that your LLC becomes the legal owner; once the property transfer has been accomplished, your LLC becomes the recognized owner of that asset.
Transfer Property to LLC
Transferring property to an LLC is not necessarily a complicated process, and in some cases you can do it yourself. In other cases, you may decide to consult an attorney to assist you in preparing the proper paperwork; for example, if you own real property you would like transferred to your rental property LLC, you may opt to retain an attorney to help you prepare the title deed or property deed for the transfer.
- Personal or business assets. In order to transfer a personal or business asset that is not real property to your LLC—for example, computer equipment or office furniture—you will need to prepare a bill of sale to document the sale. Once the bill of sale is prepared and you're ready to sign it, take it to a notary public to have your signature on it notarized.
- Real property. In order to transfer real property to an LLC, you will need to have a deed prepared for the transfer of the property. This deed needs to show the company as the property's title holder, and once completed it will need to be filed with the proper office in the county where the property is located. Since transferring real property can be complicated, you may wish to have the deed drawn up by an attorney. Once the deed has been prepared, have it notarized before filing it with the proper county recorder's office.
When transferring real estate that's already mortgaged to your LLC, it's important to contact your lender first. Most mortgage documents contain a "due on sale" clause; such a clause means full payment of the mortgage comes due if the property is sold. Since a transfer of property to your LLC constitutes a sale, such a clause may be triggered unless you obtain your lender's approval prior to the transfer.
Advantages of Placing Property in an LLC
Depending on your individual circumstances, there may be advantages to placing property in your LLC, including:
- Asset protection. One primary advantage is asset protection. If there is a potential risk of liability associated with any property you own, placing it in a properly maintained LLC will help to protect your personal assets in the event someone is injured while on the property or using the property and decides to pursue a lawsuit against the property owner—in this case, the LLC. For example, if you own rental property, it may make sense to have a properties LLC which holds the title to your rental property; if someone is injured on the property held by the LLC, the LLC will afford you limited liability protection.
Tax advantages. There may also be tax advantages to transferring property to an LLC; if you're considering a transfer of assets to your LLC for the purpose of taking advantage of any tax consequences, it's a wise move to consult with a tax professional in order to fully understand all the pertinent tax consequences that may be triggered by such a transfer.
Disadvantages of Placing Property in an LLC
You may also run into a number of disadvantages to placing property in an LLC, including:
- Costs. There are certain costs associated with the registration and annual registration renewal of an LLC. Additionally, there are also other costs you should consider, such as the costs associated with preparing and filing deeds to record the transfer of real property to an LLC. Since these costs vary from state to state, you should check with your state authorities to determine how significant such costs will be.
- Financing. The difficulty of obtaining financing for property owned by your LLC may be another disadvantage. If you require financing after you've transferred your property to an LLC, you may find lenders and bankers are reluctant to lend to an LLC. While it's not impossible to get financing for property owned by an LLC, the process of finding a lender to finance LLC property can often be more challenging than obtaining financing for your own personal property. And if you're contemplating the transfer of already-mortgaged property to an LLC, remember that a "due on sale" clause may be triggered and you should speak with your lender and obtain its approval prior to the transfer.
Tax consequences. Just as a transfer of property to an LLC may trigger tax advantages, such a transfer might also generate new tax obligations for either you personally or for your LLC. To be aware of any potential tax disadvantages which may arise from transferring property to an LLC, consult with a tax professional prior to implementing the transfer.
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