Whether you own rental property or are setting up a new business, you may want to transfer some of your personal assets to an LLC to pull out equity for liability protection.
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by Jane Haskins, Esq.
Jane has written hundreds of articles aimed at educating the public about the legal system, especially the legal aspe...
Updated on: March 18, 2024 · 3 min read
Putting property in an LLC is a common strategy for new businesses, landlords, and real estate investors. It's not a difficult process, but it's important to document the transaction and consider the tax consequences.
You might put property into an LLC for two main reasons:
If you're starting a new business, you'll probably put some of your own money into it. You may also transfer personal property like office equipment, tools, or vehicles to the business.
But transferring property to the business isn't as simple as moving money around or taking your printer to your new office. To avoid tax problems and keep your company books in good order, you need to properly document the transaction. Follow these steps:
If you're not familiar with business accounting, it's a good idea to have an accountant or business lawyer help you properly document asset transfers and startup costs.
First, you'll need to form an LLC by filing articles of organization with your state's business formation agency, in addition to any other applicable requirements.
If there's a mortgage on the property, contact your lender to find out about restrictions on transfers and get approval for a transfer to your LLC. It's important to realize that transferring property to an LLC does not relieve you of personal responsibility for paying the mortgage.
Next, get a form for a warranty or quitclaim deed that's valid in your state, or have a lawyer prepare a deed for you. When you buy real estate from someone else, you'll usually get a warranty deed that guarantees the title to the property is good. But many people use a quitclaim deed to transfer property to their LLC. A quitclaim deed simply says that you're passing whatever interest you own in the property to the LLC.
A deed must be signed, and it may need to be witnessed or notarized to be valid, depending on your state. After it's signed, take it to the city or county agency that handles real estate records so it can be recorded.
Once the transaction is complete, you can amend your lease to say that the LLC is now the landlord. Be sure to establish a bank account for the LLC and handle all income and expenses on your rental property through the LLC account.
Several factors determine whether you should put your rental property in an LLC, including the impact on your taxes, potential liability exposure, and your lender's willingness to approve a transfer.
However, it's not generally recommended that someone put their house in an LLC. While you can put your personal residence under an LLC, that can have unpleasant tax consequences, including losing homestead tax exemptions and the capital gains tax exclusion when you sell.
You can put property under an LLC by following good accounting practices and completing and filing a few forms. But transfers to an LLC can have ripple effects, so it's best to sort through the pros and cons with a lawyer or accountant before you get started.
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