Tranfering properties from personal to Llc or s corp

Ellicott City, MD · Member since 2017 · 18 posts · 0 votes

I currently own all my properties under my name and just created an llc. I also have an s corp for my two restaurants. Can I keep using my s corp for everything or do I have to use a seperate entity? Am I able to transfer the name to my llc or s corp? What kinds of costs are there? What about the contracts I have in right now that have not settled. Can I ask them to switch it to the llc or s corp? Thanks in advance!

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Jon Pitcher

Property Manager · Oklahoma City, OK · Member since 2016 · 87 posts · 69 votes

@Samuel Lee Talk to a Maryland attorney, but based on what you have told us, the solution looks pretty simple.

1. Create a new Maryland LLC. The filing fee is only $100. http://dat.maryland.gov/businesses/documents/fees....

2. Have your attorney prepare an operating agreement (it may be called a Company Agreement in your state) for your LLC. If you are married, it is generally a good idea to make your spouse a 50/50 member with you because in some jurisdictions a multi-member LLC is treated more favorably than a single-member LLC for asset protection purposes. A corporate (or transactional) attorney will have the most experience with LLCs, but a real estate lawyer can probably draft an operating agreement too. You don't need a complex operating agreement, but it should be state specific.

3. Execute quit claim deeds to transfer your free and clear properties into your new LLC. This is extremely simple. Any attorney that can draft an operating agreement can draft a quit claim deed, and a title company could this for you as well.

4. If you have a loan in your personal name on a property, leave that property where it is. The asset protection is not worth the risk of the lender calling your loan due.

5. Leave your restaurant assets in the S-Corp and separate from your real estate. A judgment against your S-Corp won't reach your LLC assets and a judgment against your LLC assets won't reach your S-Corp assets. A judgment against you personally can still cause all kinds of problems, so make sure you are adequately insured.

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Rod HanksBusiness Member
Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes
9y
I would suggest speaking with your CPA.
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Ryan Ahlgrim
Investor · Sapulpa, OK · Member since 2013 · 146 posts · 50 votes
9y
It all depends on how their financed so ask your lender. If they're commercial loans the bank might ask you to refinance into the new LLC/Inc name. If they're personal 30 year home mortgages they'll most likely tell you no since they typically don't lend to corporations. You can quit claim deed your properties from your personal name into your LLC/Inc at the county assessor's office. It might cost $13 per document. Pretty easy process. If you have contracts in place in your personal name you can either ask to redo the contracts or have all parties sign a contract amendment that states all business is being handled in the LLCs name now. Maybe call an attorney who specializes in business law and ask what's the best way. Usually those guys don't mind answering simple questions like that just over the phone.
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Samuel Lee
OP
Ellicott City, MD · Member since 2017 · 18 posts · 0 votes
9y
I own one of the homes free and clear. The other home is also cash but I have just submitted the contract under my personal. And the third is a shortsale and I haven't gotten the approva from the bank yet but have submitted my contract under my personal name too. I'm an investor in all of them.
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Ryan Ahlgrim
Investor · Sapulpa, OK · Member since 2013 · 146 posts · 50 votes
9y
John Anderson that's why I said talk to your lender first. I just went through the process of deeding properties over to an LLC and my lender worked with me on everything because I came to them upfront.
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Steven Stokes
Specialist · San Francisco, CA · Member since 2013 · 227 posts · 158 votes
9y
@Samuel Lee
Can I keep using my s corp for everything or do I have to use a seperate entity?
I also own businesses and real estate. How I was instructed by a really good attorney to hold these properties is have the businesses each have their own separate corp.
Never hold more than two real estate properties in a corp.
And put all of my assets into a trust.
Many people think if their corporation is sued then they are protected because the corporation is being sued but a lot of the time, YOU personally and the corp will be sued. This is why you need the trust to hold your corps in.
Am I able to transfer the name to my llc or s corp?
Yes
What kinds of costs are there?
Depends on your state, your attorney and how complicated you need or want it to be.
What about the contracts I have in right now that have not settled. Can I ask them to switch it to the llc or s corp?
With most contracts, you will also have had to sign a personal guarantee as well. So for regular debts and accounts payable they will be able to work with you without much hassle.
With your residential properties, you will have to talk to your mortgage person. It might be easier to put them in a trust than in a corp. But that's something you can talk to your bank then your attorney about.
I hope this all made sense.
Good luck!
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Jeff Filali
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y
On the one under contract, as long as the contract doesn't say that its not assignable, just do an assignment addendum before closing. Won't cost you anything. I do the same thing all the time when I purchase properties because I contract all purchases under my "acquisitions" LLC but assign them to my "holding" LLC at closing.
Again this would depend on if you're paying cash or financing them. I don't have mortgages on any of my purchases.
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Samuel Lee
OP
Ellicott City, MD · Member since 2017 · 18 posts · 0 votes
9y
thank you guys for all the great info!!
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Samuel Lee
OP
Ellicott City, MD · Member since 2017 · 18 posts · 0 votes
9y
@Steven Stokes what kind of attorney should I be looking for to help me with this? Or does anyone have any references in the Maryland area?
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Dorian Jones
New to Real Estate · Los Angeles, CA · Member since 2017 · 118 posts · 60 votes
9y
Look for a real estate lawyer. I found a great one in Yelp.
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John Kesner
Investor · Reno, NV · Member since 2015 · 167 posts · 90 votes
9y
Samuel Lee Ask your title company about doing at quit claim deed at the court house. I hear they get funny about title insurance (can be an issue when you sell) when you do this outside of a title company. People talk about chain of title. What they mean is chain of title insurance. If the property is transferred without title insurance, the "chain of title" is broken and title insurance can be more expensive. Some properties are even uninsurable (title wise) which makes them very hard to sell. Just something to be aware of. -John
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Steven Stokes
Specialist · San Francisco, CA · Member since 2013 · 227 posts · 158 votes
9y
Lawyers are specialist now. A good real estate attorney might be a terrible estate attorney. And eventually, you'll need both. My advice is to find a good law firm that has the attorneys and resources to handle your business and your real estate investments together. This is will cost a little more BUT what you save in time and hassle will pay itself back over and over again. There's a reason why the wealthy pay for good attorneys and they might skimp on everything else under the sun but they always get the best legal advice and help.
You become wealthy by making the right decisions before you are wealthy not after. So, basically, I'm trying to share with you this is something you do not want to skimp on. Find the best attorney you can afford and put that attorney on your team.
If you need some help choosing the right attorney I have experience in dealing with attorneys and I would be glad to give you my best advice.
I hope this helps. Good luck.
Stephen
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Jon Pitcher
Property Manager · Oklahoma City, OK · Member since 2016 · 87 posts · 69 votes
9y
@Samuel Lee Talk to a Maryland attorney, but based on what you have told us, the solution looks pretty simple.
1. Create a new Maryland LLC. The filing fee is only $100. http://dat.maryland.gov/businesses/documents/fees....
2. Have your attorney prepare an operating agreement (it may be called a Company Agreement in your state) for your LLC. If you are married, it is generally a good idea to make your spouse a 50/50 member with you because in some jurisdictions a multi-member LLC is treated more favorably than a single-member LLC for asset protection purposes. A corporate (or transactional) attorney will have the most experience with LLCs, but a real estate lawyer can probably draft an operating agreement too. You don't need a complex operating agreement, but it should be state specific.
3. Execute quit claim deeds to transfer your free and clear properties into your new LLC. This is extremely simple. Any attorney that can draft an operating agreement can draft a quit claim deed, and a title company could this for you as well.
4. If you have a loan in your personal name on a property, leave that property where it is. The asset protection is not worth the risk of the lender calling your loan due.
5. Leave your restaurant assets in the S-Corp and separate from your real estate. A judgment against your S-Corp won't reach your LLC assets and a judgment against your LLC assets won't reach your S-Corp assets. A judgment against you personally can still cause all kinds of problems, so make sure you are adequately insured.
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
9y
1. You never ever want to hold real estate in a corporation.
2. There are significant basis issues.
3. Double taxation is a great possibility.
4. You lose the benefit of stepped up basis upon date of death.
To suggest holding it longer term in any kind of corp can be construed as malpractice.
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Steven Stokes
Specialist · San Francisco, CA · Member since 2013 · 227 posts · 158 votes
9y
@Steven Hamilton II While I appreciate what you're saying. I think everyone's situation is different. To make a blanket statement about what EVERYONE should do or not do, I feel, does not necessarily appreciate the nuance of an investor's personal and financial situation.
The four issues you stated are real but there are ways around it and there are always pros and cons to any structure you hold an investment.
This is just my opinion. I do enjoy and respect your post.
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
9y
Originally posted by @Steven Stokes:

@Steven Hamilton II While I appreciate what you're saying. I think everyone's situation is different. To make a blanket statement about what EVERYONE should do or not do, I feel, does not necessarily appreciate the nuance of an investor's personal and financial situation.
The four issues you stated are real but there are ways around it and there are always pros and cons to any structure you hold an investment.
This is just my opinion. I do enjoy and respect your post.
Steven,

I'm sorry, you have absolutely no idea what you are talking about. Holding property in a corporation creates a tax that never dies. Unless someone is creating a REIT to advise such to anyone other than a Non Resident Alien of the US is malpractice. I represent taxpayers before the IRS for a living. I spend my time advising real estate investors all day long.
You will find that I rarely make blanket statements and specify that things need to be analyzed.
There are no ways around the tax when a beneficiary inherits the stock in a corp that has unrealized gains that could have been avoided by being held in a SMLLC or held in a trust etc. I would highly advise a consultation with someone that specializes in real estate investment. There are a few of us here on BP.
I'm sure a few of the other accountants on here such as @Natalie Kolodij @Linda Weygant or @Lance Lvovsky will agree 100% with me.
Explain to me what way there is around the tax bill of highly appreciated property in a corporation? Oh you'd think you could just sell the stock? Good luck. Can't just remove it from the corp either as that is deemed a sale at FMV AND is treated as a distribution or dividend. Oh 1031 exchange, doesn't get rid of the gain.
Partnerships have the option of a 754 election which steps up the basis for recognition of gain. Holding personally or in a SMLLC allows it to be held as if not entity was in place. Which is not a great idea in CA due to the $800 MINIMUM franchise tax. You don't want to know what it looks like on a 300k gain on a property.
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Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
9y
While I never say never with the same emphatic certainty as @Steven Hamilton II, on the surface you would have to have a VERY special set of circumstances to hold rental properties in a corporation, much less an S-Corporation. The drawbacks usually far outweigh any benefits you might realize and there's usually a better way to accomplish the goals that holding in a corporation allows without dealing with the drawbacks. This is usually accomplished with some level of entity layering which can accomplish the desire for liability limitation while not screwing you (or your heirs) completely over from a taxation
The OP was also wondering about holding everything in one S-Corp, which (although I'm not an attorney), I would raise an eyebrow at. I would think that the liability from a food poisoning incident would then put your properties at risk for judgment collection or a slip and fall at the rental would put the restaurants up for grabs, but as I said, I'm no lawyer.
As always, the best advice is to sit down with a highly knowledgeable real estate focused CPA to work through your particular scenario, your future plans and goals and then work out a tax plan. Take that to a lawyer and have them bless it (or vice versa - lawyer first for liability issues, then CPA for taxes).
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
Ouch. @Steven Hamilton II gives me a head ache. I'm not sure I can even spell 754. And that's exactly why he's one of the go to guys nationwide.
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Steven Stokes
Specialist · San Francisco, CA · Member since 2013 · 227 posts · 158 votes
9y
@Steven Hamilton II OK I do admit I am not an expert in this area.
To say, "I have no idea what I'm talking about" is rude and unhelpful to this discussion just because I slightly disagreed with you. I hope this is not the way you treat everyone who disagrees with you.
I also guess these other CPAs and real estate attorneys, who have written post on holding real estate in an LLCs (most for California) also have no idea what they are talking about either.
If you read the following links (all from CPAs and real estate attorneys) they all recommend holding real estate in an LLC for liability protection.
https://www.nerdwallet.com/ask/question/what-is-th...
https://odgerslawgroup.com/california-real-estate-...
http://www.yourlegalcorner.com/articles.asp?cat=ll...
It looks like what most CPAs and attorneys in California advise is holding your real estate in an LLC. Which is basically what I've been saying.
I do not want to get into a pissing match with you or anyone, I'm just saying people should get professional advice for their own personal situation where they live.
But if you think that is stupid then we disagree.
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Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
@Steven Stokes
That's not what you said though. You referenced the OP with regarding to holding properties in a CORP- not an LLC. Holding in an LLC is what Steve, Linda...and the majority of tax professionals, myself including, would recommend.
You recommended to him to never hold more than 2 properties in a corp. The GENERAL (again depends on personal circumstances, but the majority of times) you don't want to hold any properties in a Corp because there's several downfalls regarding excess taxation and basis issues down the road.
You then responded to Steven's very legitimate reasons why to not *generally* hold properties in a corporation. Again- you weren't referencing an LLC. I think you might have mis-spoke or there was a communication breakdown in the thread. But an LLC isn't a Corp.
Steve has provided THOUSANDS of incredibly useful, accurate tax posts on BP so trying to respond in a way to discredit him because you mis-worded your first reply in this thread is a little disrespectful.
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
9y
Originally posted by @Steven Stokes:

@Steven Hamilton II OK I do admit I am not an expert in this area.
To say, "I have no idea what I'm talking about" is rude and unhelpful to this discussion just because I slightly disagreed with you. I hope this is not the way you treat everyone who disagrees with you.
I also guess these other CPAs and real estate attorneys, who have written post on holding real estate in an LLCs (most for California) also have no idea what they are talking about either.
If you read the following links (all from CPAs and real estate attorneys) they all recommend holding real estate in an LLC for liability protection.
https://www.nerdwallet.com/ask/question/what-is-th...
https://odgerslawgroup.com/california-real-estate-...
http://www.yourlegalcorner.com/articles.asp?cat=ll...
It looks like what most CPAs and attorneys in California advise is holding your real estate in an LLC. Which is basically what I've been saying.
I do not want to get into a pissing match with you or anyone, I'm just saying people should get professional advice for their own personal situation where they live.
But if you think that is stupid then we disagree.
Steven,
Honestly, I just don't want you to run into a situation where someone sues you out of nowhere. I truly was not trying to jump down your throat on it. You did state very clearly above a corporation which is very different from an LLC. Granted you can have an LLC taxed as a corporation; however, in the IRS's eyes it IS a corporation. As far as the IRS is concerned an LLC doesn't exist. The biggest issue is the technical terms.
I have a duty to protect those on the forum here from any incorrect information as it COULD be misconstrued which is where I advice someone to talk to an EA or CPA.
Honestly never hesitate to message me if you have a question. That is why I'm here I like to help people. I extend my apologies if it felt like I was attacking. We get a lot of bad information that comes around and fight hard to explain to people why they can't deduct their wedding etc.
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Steven Stokes
Specialist · San Francisco, CA · Member since 2013 · 227 posts · 158 votes
9y
@Natalie Kolodij
When I said corp, I meant not personal. I do realize that an LLC is a hybrid corporation but that was not the point I was trying to make. The point I was trying to make is to get professional advice for his personal situation.
I did not say Steven's advice was wrong. I did say that blanket statements are not helpful. If that is too rough on accountant's egos here on BP then I don't know what to say.
I don't see anywhere that I was disrespectful to Steven. Matter of fact I did say "I enjoy and respect his contributions." Just because I do not blindly follow blanket statements from people on random real estate forums doesn't mean that I'm wrong to give the advice I gave.
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
9y
Originally posted by @Dave Foster:
Ouch. @Steven Hamilton II gives me a head ache. I'm not sure I can even spell 754. And that's exactly why he's one of the go to guys nationwide.
Btw @Dave Foster, first round is on me the next trip to FL. Take a look at your calendar around the 16th of May.
[email protected]224-381-2660
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Steven Stokes
Specialist · San Francisco, CA · Member since 2013 · 227 posts · 158 votes
9y
@Steven Hamilton II Thank you. I should have been more specific when I was saying corp. I should have been more specific.
I really don't want to get into a fight with anyone on here. I only offer advice from my own personal experience.
I understand what you are saying and I appreciate explaining more about this topic.
Thank you for the offer to message you. I haven't even done any business in Ill but I'll be happy to buy you a drink if you're ever in San Francisco. lol
Thanks
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Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
Originally posted by @Steven Stokes:

@Natalie Kolodij
When I said corp, I meant not personal. I do realize that an LLC is a hybrid corporation but that was not the point I was trying to make. The point I was trying to make is to get professional advice for his personal situation.
I did not say Steven's advice was wrong. I did say that blanket statements are not helpful. If that is too rough on accountant's egos here on BP then I don't know what to say.
I don't see anywhere that I was disrespectful to Steven. Matter of fact I did say "I enjoy and respect his contributions." Just because I do not blindly follow blanket statements from people on random real estate forums doesn't mean that I'm wrong to give the advice I gave.
This isn't an Ego game. It's a matter of there being sooooo much incorrect, slightly misconstrued, generally not the case, information that gets shared that there isn't a ton of room of mucky, un-clear advice.
Steve's blanket statement is something that's true for 95% of the time. Given that this is a web forum and not a sit down consultation someone is paying for...it's fair to assume that's sound advice for their situation.
He should absolutely get professional advice because everyone's situation is different. However when multiple long standing tax professionals are kind enough to provide their professional opinions, trying to swap someone otherwise based on the merits of your "not an expert" experience isn't helpful to the OP it just leaves them in a fog of mixed information.
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
9y
@Steven Stokes,
People have got to stop offering free drinks in places... I'm the person that WILL take them up on it. My tax audit work has me travelling quite a bit outside of tax season which is wonderful.
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