Transferring Primary Residence to LLC
Antonio Ward JrPro Member
Member since 2025 · 17 posts · 13 votesTransferring Primary Residence to LLC
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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votesHave you talked to your CPA? Depending on your situation, turning your personal residence into a rental, can be a bad financial idea.
If you still want to turn it into a rental...
"Reap the tax benefits" - Putting it into an LLC doesn't change a thing. Again, talk to your CPA
"not be personally liable" - If the mortgage is in your name, but the deed is in an LLC, are you treating this LLC like it is a separate entity, independent from yourself??? I've heard several attorneys argue that this pierces the corporate veil. If that is the case, putting the property in an LLC really provides you no liability protection either.
What you are proposing to do might make no sense financially or legally. Talk to your advisors.
13 Replies
- 6moGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
Have you talked to your CPA? Depending on your situation, turning your personal residence into a rental, can be a bad financial idea.
If you still want to turn it into a rental...
"Reap the tax benefits" - Putting it into an LLC doesn't change a thing. Again, talk to your CPA
"not be personally liable" - If the mortgage is in your name, but the deed is in an LLC, are you treating this LLC like it is a separate entity, independent from yourself??? I've heard several attorneys argue that this pierces the corporate veil. If that is the case, putting the property in an LLC really provides you no liability protection either.
What you are proposing to do might make no sense financially or legally. Talk to your advisors.
There will be zero tax advantages, there will be zero liability advantages.
You will lose the tax free gain you can have as a personal residence so it could cost you 10’s of thousands or more.
Unless you have almost zero appreciation and don’t mind making it taxable this is a bad decision. On the other hand there’s no reason to keep it unless you can’t sell without bringing cash to the table. PLEASE talk to the CPA that’s doing or going to do your taxes when it’s a rental. If they don’t put the kibosh on it, talk to the PM you plan to use. Because I’m sure you aren’t planning on making your first rental a previous owner occupied home from out of state.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes6mo
@Antonio Ward Jr If you are planning on only renting for 3 or less years then selling, you would retain the IRS Section 121 $250,000/$500,000 capital gains Tax Exclusion. If you plan on renting for more than the next 3 years, the exclusion is lost anyway because you fail to use the property as your personal residence for "2 of the last 5 years" as required by the IRS.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes6mo
@Antonio Ward Jr Also there are many pitfalls to the LLC that could cause a piercing, such as not having a separate bank account for each LLC, or not holding annual meetings with written minutes of the meeting, or comingling funds between yourself and the LLC. For liability protection, the two best things are don't do things that create liabilities, and have a large Umbrella Insurance policy to cover liabilities above your regular insurance policy.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes6moMost likely going to spend a lot of time and money to gain zero benefit
7e investments53 Reviews - 6moJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votesWelcome to BP, Antonio! The main thing to watch is the due-on-sale clause since transferring a mortgaged home into an LLC can technically trigger it, even if some lenders don’t enforce it; because of that, a lot of investors keep the loan and title in their personal name and protect themselves with good insurance instead of risking the transfer, since LLCs don’t usually create big tax benefits for a single rental anyway and are more about liability; if you really want it in an LLC, you’d typically need to refinance into a loan that allows it, which can be more expensive, so your best move is still to talk with a real estate attorney and possibly your lender before doing anything.
Quote from @Antonio Ward Jr:
Hello Bigger Pockets Fam,
I'm in need of some guidance in regards to transferring my primary residence to a LLC. The home is located in MI and I plan on moving to Chicago this summer. I still owe a mortgage on the home and don't want the due on sale clause to effect me if I do transfer the property. I would like it in a LLC to reap the tax benefits and not be personally liable for it. I know it is possible but would like advice on the best way to execute this. I'm thinking about talking to an attorney and having them walk me through the process. Has anyone done this before and what was the steps, cost, and requirements to perform this?
Jimmy Lieu, Red 1 Realty4.9120 Reviews - 6moDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesAs many have commented, there are no foreseeable tax advantageous, unless you place the property under an LLC with other properties and have the LLC taxed as a corporation and choose Chapter S taxation. In that case net income would be taxed as dividends, and if you didn’t take a salary not subject to Social Security/Medicare taxation. But, this is a very specific instance, depending on your personal financial situation. The other possible tax advantageous is if the LLC is taxed as a C corp, AND you didn’t take not take distributions of profits, the net income is taxed at 21% corporate rate. There also may be retirement account deferred income, or ROTH possibilities, if you regard the property as part of a BUSINESS of real estate rather than a real estate investment. Downside is you lose “income pass thru” and enter potential “double taxation”. The above have kept accountants and tax attorneys fully employed!
Quote from @Antonio Ward Jr:
Hello Bigger Pockets Fam,
I'm in need of some guidance in regards to transferring my primary residence to a LLC. The home is located in MI and I plan on moving to Chicago this summer. I still owe a mortgage on the home and don't want the due on sale clause to affect me if I do transfer the property. I would like it in a LLC to reap the tax benefits and not be personally liable for it. I know it is possible but would like advice on the best way to execute this. I'm thinking about talking to an attorney and having them walk me through the process. Has anyone done this before and what was the steps, cost, and requirements to perform this?
As for liability, placing a property into a LLC or any other legally remote entity, removes future liability (except when you provide personal guarantees) from your personally, and from your other assets. The two caveats are that personal liability MAY attach in instances of fraud, or when the liability results from an act you personally performed, rather than from the property in general.
it was stated in another post on this thread that if property corporate governance is not maintained in an LLC (corp meetings, bylaws, etc) the “veil” will be pierced. Actually, while this is true of a corporation, the advantage of an LLC is that there are NO annual meetings, votes, or the yearly “paperwork” associated with a corporation, so there’s nothing to attend to beyond the Certificate of Formation, and Articles of Organization. What you do need to do however, is keep the LLC “in good standing” which differs in every state. For example a Texas LLC needs to fill out an annual franchise report, which for most LLC is a simple fill in the blanks half page report done on line. Failure to maintain the LLC in good standing may lead to the LLC being disregarded in court, so in a sense the poster was correct, but for the wrong reason.
As for “co mingling” funds between your personal and LLC account, this may be the single WORST thing someone can do as far as asset protection is concerned.
The prevailing feeling amongst the most active and experienced BP participants is that placing real property in an LLC for most people is unnecessary, provides little if any benefit, can be handled with sufficient liability insurance coverage, and can get expensive.
It is one of the few areas where I strongly DISAGREE. Not only do I believe EVERY investment property should be in a remote entity, like an LLC, but I believe each should be in it’s own LLC with each LLC holding a single property. The way I’ve structured my holdings is that each asset I own is in its own ‘SERIES’ of a single series LLC. There is only one formation fee to pay the state, no annual fees, and only one annual report to fill out. Asset protection is like insurance, you hope you never need it, and if you do it’s too late to buy it. - 6moDenise SuppleeBusiness MemberRealtor · Willow Grove, PA · Member since 2017 · 995 posts · 647 votes
Hi @Antonio Ward Jr nice to meet you here on BP! The main issue is the due on sale clause. Transferring a mortgaged property into an LLC can technically trigger it, and while some lenders don't act if payments are current, they still have the right to call the loan due. That's the real risk.
Also, the tax benefits of an LLC for a single rental are usually minimal. The bigger benefit is liability protection, which you can often cover with a strong insurance policy while keeping the loan in your personal name.
The safest route is either keeping it in your name and converting it to a rental, or speaking with your lender before doing anything. An attorney is a good idea, especially since you’re moving out of state.
Spark Rental Co-Investing Club582 Reviews - Accountant · Chicago, IL · Member since 2026 · 11 posts · 21 votes6mo
CPA here. A couple things worth knowing before you do anything.
The LLC itself won't give you any tax benefits. For a single-member LLC, it's a disregarded entity -- everything flows to your Schedule E exactly the same as if you held it in your own name. Depreciation, deductions, rental income -- no difference, regardless of whether the deed is in an LLC or not. If someone told you the LLC saves taxes, they were thinking of something else.
What you actually stand to lose is bigger. Right now you qualify for the Section 121 exclusion -- up to $500,000 in capital gains tax-free (married filing joint) when you sell, because it's your primary residence. Once you move to Chicago and start renting, you've got a 3-year window before you lose that permanently. The IRS rule is you need to have lived there 2 of the last 5 years. Move out this summer, the clock starts running, and by summer 2028 it's gone whether the property is in an LLC or not.
There's also the depreciation basis issue. When you convert to rental, your depreciation basis gets set at the lower of purchase price or fair market value at conversion. That's fine while you're renting -- depreciation offsets your rental income. But when you eventually sell, you'll owe recapture tax at 25% on all the depreciation you took. The tax picture on an eventual sale is more complicated than it looks right now.
Genuinely worth sitting down with a RE-focused CPA before you make the transfer. The question isn't just LLC or no LLC -- it's what does your gain look like if you sell now vs. sell in 3 years vs. hold for 10, and does the rental pencil out after you account for the deferred tax liability.
- CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 94 votes6mo
@Antonio Ward Jr, hi. Transferring your home to an LLC can trigger the due-on-sale clause, so there's some risk without lender approval. There are usually no direct tax benefits—LLCs are mainly for liability. Many investors keep the property in their name and use insurance instead. Best move: consult a CPA.
Hi Antonio from Detroit, MI-
Congratulations on having a property in Detroit you live in and plan to turn into a rental when you move this summer!
You asked about putting your property into an LLC and avoiding triggering the due on sale clause with your lender. Usually this is not a problem and we recommend our clients work with a local Michigan asset protection attorney we refer them to.
Happy to help and to your success!
- 6moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
Quote from @Antonio Ward Jr:
Hello Bigger Pockets Fam,
I'm in need of some guidance in regards to transferring my primary residence to a LLC. The home is located in MI and I plan on moving to Chicago this summer. I still owe a mortgage on the home and don't want the due on sale clause to effect me if I do transfer the property. I would like it in a LLC to reap the tax benefits and not be personally liable for it. I know it is possible but would like advice on the best way to execute this. I'm thinking about talking to an attorney and having them walk me through the process. Has anyone done this before and what was the steps, cost, and requirements to perform this?
We're all assuming you plan to rent this property out.
Is that true?
Regarding the mortgage, FNMA allows transfer of deed to LLC if mortgage originated after June 1, 2016 and original borrower owns a majority interest in the LLC and any 12 months of owner-occupancy is first met.
https://servicing-guide.fanniemae.com/svc/d1-4.1-02/allowable-exemptions-due-type-transfer
Logical Property Management4.9460 Reviews - 6moAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Transferring your primary residence into an LLC can offer tax benefits and asset protection, but be mindful of your mortgage. The due-on-sale clause may apply, so check with your lender first. After the transfer, the property may no longer qualify for the capital gains exclusion but could be depreciated within the LLC. Depreciation could have significant tax benefits but it would be wise to consult with a CPA, to understand how it would work. Also, as Bill B. suggested, consulting with an attorney is crucial to ensure the process is done correctly and to avoid legal issues. Costs will vary, including attorney fees and any necessary filings. It's a good idea to get specific advice to understand all the steps and costs involved.
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