Kids are gone and My Primary home is too big for my wife and I.
Here are the facts: We are in Texas. We already have a Series LLC with one Rental property (with mortgage).
Now, My Primary home is paid off. We would like to rent our Primary Home but we would like to do it under the LLC. What would be the best way to transfer our Primary home to the existing LLC (to avoid or minimize taxes)? Sell? Gift? Overtime?
Any help would be greatly appreciated Thank you
If Texas is like NY, your attorney can just do a deed transfer. If the members of the LLC are the same as the current owns. There isn't any taxes to pay. In NY a transfer like that costs $800.00.
I'm not sure in regards to the tax implications but as far as a deed is concerned just General Warranty Deed it to your LLC and filing it with appropriate courthouse. Cost in DFW about $20 and should be the same in Katy.
I would seek some tax advice before doing so. Transferring your homestead to an LLC will likely cause you to lose your capital gains exclusion which can be very, very costly on a house that is paid for.
Thank you all this is great. To comment on Guy's Gimenez good point. Our strategy is to hold the property long term under the LLC and only sell if there is a Like-Kind (or better) investment opportunity as I understan rule 1031. am I Right?
Is there a reason why you need to hold onto that house? Is it the quintessential rental like no others? The reason I ask is because while 1031 exchanges are a great tool, one of your goals should always be to seek out ways to turn tax deferred into tax free. And right now you have a great opportunity to do so with your paid off primary residence. Right now it's not been rented and you've lived in it for 2 out of the previous 5 years so you could take the first $500,000 in profit tax free just by selling it. Tax free not tax deferred. Take the money and buy another house if you want in the LLC for cash. But by doing it this way you are buying all new basis for your LLC which will greatly increase your tax writeoffs.
Like others have said you need to seek your cpa's advice to verify how your LLC has been treated for tax purposes. It may be that it is a disregarded entity for you anyway and transferring title would be no problem.
I thought that I should expand on what others have already said. You qualify for the tax-free exclusion of up to $500,000 in gain as a married couple. If you decide to rent the property out, you have a three (3) year window during which you can still sell your property and qualify for the tax-free exclusion. However, once you have passed the three (3) year window, then the property becomes 100% rental/investment property and you no longer qualify for the 121 Exclusion.
Another thing to think about is leveraging the property. While it is your primary residence, obtaining a cash out mortgage would be easy at this time. Transferring to an LLC would require commercial financing or a portfolio loan which may result in less money out on the property and higher interest rates.
Here is a blog I wrote on cash out financing.
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