Investing/Property Management Business Questions

[Paige Kuhbacher]

My husband and I recently purchased our first investment rental property. This was done in our names. We also started an LLC and have been operating the business to manage the property.

Any insight on the following questions would be very helpful. Thanks!

1. Do we need to "pay" ourselves as members (de facto owner/operators without employees) of our LLC? If so, how much/do we need to file payroll taxes as self-employed?

2. Can we pay our mortgage and utilities through the LLC bank account although we personally own the property?

3. Since we collect rent through the LLC, how much money should we transfer back into our personal account? Can we effectively view it as though we are "paying" the LLC for property management?

4. Can we use the LLC to fund maintenance costs? Would that require reimbursement from our personal accounts?

5. Does anyone have experience with transferring ownership of property to an LLC?

[Drew Sygit]

These are really questions for legal & tax professionals, but here is our experienced opion only:

1. All income & expenses will pass through to your 1040's via Schedule E

2. Yes

3. Recommend only doing it on annual or quarterly basis due to your question #4

4. Yes. If you have to put money into the LLC to fund, track the amount and pay yourselves back with rent cashflow.

5. You can easily do with a Quit Claim Deed, but check on the following:

• Consult with a tax professional to make sure you won't trigger a taxable event
• Check with local property tax assessor to see if the transfer will affect your property taxes
• See if you have a loan owned by FNMA (this is separate from the loan servicer), as they allow transfer of deed, for a property they have a mortgage lien on, to an LLC (with specific criteria). FHLMC, FHA, VA still consider such a transfer a violation of their "due on sale" clause and it may lead to foreclosure proceedings.