Rental Property Investor · Bedminster, NJ · Member since 2014 · 42 posts · 5 votes
We are rehabbing a property and will refinance afterwards to complete the BRRRR. The property is currently owned in my husband's and my personal name. We identified a local bank which is willing to refinance it into our LLC's name. The banker told us thought that this would be considered a sale, not refinance. Therefore, there may be consequences such as transfer tax etc. However, my additional concern is whether this would mean there is capital gain tax as well. I am willing to pay transfer tax and purchase title insurance. However, if there is also capital gain tax, what's the strategy to avoid paying / deferring it? 1031 exchange? FYI, the property is in Allentown, Pennsylvania.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y
@Handie Kunen in Pa. you will have to pay a transfer tax, but it isnt considered a sale. There would be no capital gains tax owed until you sell the property. If you use a quitclaim deed, there is no need to purchase title insurance. The refinance is a separate transaction, and separate from the transfer.
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
7y
ummm I do this all the time (in reverse) should be a deed transfer and it's super easy.
is the house paid for an owned by you? or is there a mortgage? If it's a mortgage and you want to quit claim it to your LLC with the same note, it's common albeit frowned upon. If you want to transfer to the new entity and get a new loan then yeah it's a sale.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y
@Handie Kunen in Pa. you will have to pay a transfer tax, but it isnt considered a sale. There would be no capital gains tax owed until you sell the property. If you use a quitclaim deed, there is no need to purchase title insurance. The refinance is a separate transaction, and separate from the transfer.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
7y
Do not use a quit claim did, instead use a warranty deed to keep your title insurance.
As said before, if the beneficial owners of the LLC are the same, it is considered a contribution to the capital of your LLC and it is not taxable. Some state will have you pay some stamp tax on the change of title, and some will even ask you to pay like it was a sale. Sometimes you can avoid the second one by putting your property in a land trust first where you are the initial beneficiary; then assign the beneficial interest to your LLC in a second time. The change of title to the trust may not be taxed in some state.
Rental Property Investor · Bedminster, NJ · Member since 2014 · 42 posts · 5 votes
7y
@Alexander Felice thanks for the reply. We did a modified BRRRR - we first purchased the property in our personal name with a mortgage because we couldn’t find a lender who can lend to an llc for a reasonable rate. As we complete the rehab, we found a local lender who can lend to an llc. So to complete the Refinance part of the BRRRR, we will refinance to the llc’s name.
Rental Property Investor · Ramsey, NJ · Member since 2016 · 72 posts · 55 votes
7y
I'm facing the same sorts of questions, needing to refi several homes in Georgia. The lenders with the best rates want you to have the note in your name.
Generally speaking, from those I've talked to, people have been fine deeding the property back to the LLC. But if said bank notices and if they decide they have reason to, they could use that Due on Sale Clause to make a push for whatever assets are securing the note.
That wiped out a lot of wealth after 2008 and we are pretty close to the end of this financial cycle.
I've heard real estate attorneys mirror @Mike S.'s suggestion about moving it into a land trust from your personal name and assigning beneficial ownership of that back to your LLC. Land Trusts are generally thought of as being used for estate planning purposes and *should* not trigger Due on Sale clauses.
@Rob Barry never heard of this... how to see a replay... or do you have anymorw insight?
I recently came across this strategy at a conference my investment group held. It was @Scott Smith of Royal Asset Solutions who gave the presentation. I just discovered he is a member here.
Land Trusts are generally thought of as being used for estate planning purposes and *should* not trigger Due on Sale clauses.
If you are still the beneficial owner of the land trust, it WILL NOT trigger the due on sale clause (Garn St Germain Act).
Now when you later assign the interest to your LLC that may trigger it, but as it is a private assignment that is not recorded, nobody should know about it. In case you are put in a situation where you are asked to prove that you are still the beneficial owner, nothing blocks you to reassign the beneficial interest to you from the LLC at that time.