Selling Your House to Your LLC
Can you sell your house to your LLC? Yes, though this depends on if your home has a mortgage. A due-on-sale clause requires the house to be paid off before transferring ownership. For tax and liability advantages, it’s best to sell to an LLC rather than other business types.
Setting up the Sale
To sell your house through an LLC, first create one correctly. List the property and find a buyer. Selling through an LLC protects assets if issues arise when flipping homes. LLCs also need less paperwork than corporations.
With a single member LLC, the IRS sees all assets as personal. Cost basis would be what you originally paid. When selling, closing costs may be deducted.
LLCs allow house flipping while protecting personal assets. The differences in deed types relate to protection offered to the recipient.
If equity exists, you may avoid a 20% down payment when moving a property to your LLC. Funds to purchase and repair the property can possibly come from the LLC if documentation properly records them as loans at current interest rates.
Selling to your LLC at market value lets you create a tax-free Directors Loan Account to repay over time. Consider if you need income short-term and intend to manage properties full-time.
As an existing, multi-property LLC, deduct taxes, interest, and depreciation. When occasionally renting your house, pay yourself rent to classify it as a rental. IRS rental rules may dictate limits on owner stays.
Review options aligning with new tax laws. Transferring personal property into an LLC you control then renting it back is complex but can provide advantages.
Disadvantages of LLC for Property
What are the disadvantages of an LLC for property? Owning a property as an LLC allows members to report income or losses on the property on their individual tax returns and pay in the form of personal income taxes, rather than business or corporation taxes.
However, the due-on-sale clause in a mortgage loan agreement can put the responsibility of paying off the loan on the LLC owner. In the UK, property investors are subject to an extra 3% stamp duty for a limited company surcharge when purchasing residential properties not intended to be the buyer’s primary residence.
Companies are also required to comply with various reporting and filing obligations, including annual accounts, tax returns, and maintaining statutory registers. There are also added costs and fees to create and maintain an LLC, and many states charge initial fees and taxes on processes such as annual reports or franchise taxes.
While an LLC offers liability protection without the complexities of a corporation, there are still costs and limitations to consider when using an LLC to own investment property. Weighing the pros and cons of the various business structures can help determine if an LLC is the right choice.