Transferring Property in Pennsylvania

8 Replies

I have 3 Single Family rentals in Philadelphia that I'd like to transfer into an LLC or Trust through a partnership with my brother who will become an equity partner through the LLC or Trust. Currently the mortgages are in my name. I have 75% equity in all of the homes. Since Pennsylvania applies a tax to a transfer of title regardless if there's a sale what is my best option to avoid paying tax to shift ownership and mortgage into an LLC or Trust? Is there any benefit in paying off the mortgages and selling the properties for a $1 to the LLC or Trust and then financing it through the LLC or Trust for leverage?

@Drew Oberholtzer

You should talk to a title company to an attorney.  If you sell your properties for $1 you are still responsible for transfer tax that will be calculated based on the common level ratio value.  Also you should be able to transfer title without changing the mortgage and keep it under your name. I doubt you can assume your mortgage with your new partnership. You should read your mortgage documents or talk to your lender. Also I find it difficult to finance properties that are held in trust. Before putting your properties in trust find a lender that will be willing to finance your deals. 

I am in a similar situation and a lawyer told us that we have to pay 4% (of what we paid for property) transfer fee to move into an LLC.

Someone else told me you can do a zero consideration transfer. Have to do more research though.

Originally posted by @Antonio Artusa :

I am in a similar situation and a lawyer told us that we have to pay 4% (of what we paid for property) transfer fee to move into an LLC.

Someone else told me you can do a zero consideration transfer. Have to do more research though.

The zero or nominal consideration transfer still gets transfer tax treatment at  a value that is determined based on the tax assessor valuation and the PA Department of Revenue leveling factor. So you don't get out of it that way.

There are some ways that the bigger players use to transfer partial interests without transfer tax becoming a factor; then they repeat within time restrictions that regulations allow so that the entire interest is eventually transferred.

Perhaps @Chris K. or @David Krulac might have some input.

@Antonio Artusa

As @Steve Babiak said, transferring the property from you to the LLC for zero/nominal consideration doesn't work to avoid realty transfer taxes. You'll still have to pay realty transfer taxes on the fair market value of the property.

There's something called an 89-11 transfer that you may want to look into. But PA Department of Revenue has tried to crack down on that for several years by changing the regulations over and over again. In fact, the last set of changes made it more difficult to do these. And even if you want to do this, you personally will need to remain as a part owner for several years. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

Thanks.  All this information is great and insightful.

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