Attorney recomended to not put property in LLC???

Question

I called an attorney yesterday to get some information about closing cost and in the process I asked about the transfer tax if I buy the property in my name and then move it to the LLC. He said I shouldn't be putting properties into an LLC. This really baffled me. Does anyone know why he would say this?

I have since then contacted another local REI and he gave me the name of another local attorney that also invest in RE. I'm going to call him today to see what he says about it.

I have since then contacted another local REI and he gave me the name of another local attorney that also invest in RE.  I'm going to call him today to see what he says about it.

Account Closed · Answer

shadowrentalco,

Call the attorney back and ask him why. It could be based on how you described what you will be doing. It could be because the attorney is addressing a transfer tax concern.

We do not know and all we could do is speculate. At the same time the attorney could just be wrong.

John Corey

Joe Wilson · Answer

Well, from a tax point of view.

If you are rehabbing, then you don't want them in an LLC.  The properties will be inventory and all the activity will be ordinary trade or business and will be subject to SE tax - 15.3%.  You should have an S-corp for this business so you don't fall under the SE tax rules and you still have flow-through status and single taxation.

If you have the properties as investments, then you want it in an LLC as Rental Income is not subject to SE tax and you have more flexibility to pass on losses and make distributions to the partners.

If something baffles you, then you need to ask more questions to get further explanation.  A good attorney will answer all your questions and give a full explanation of his opinions.  It is hard for any of us to speculate what he is thinking.

joe

Jim Gordon · Answer

It all depends on what you are doing with an LLC. If you are rehabbing, doing the repairs, doing the property management I have been told you are still liable because you are performing those duties. I was told that an umbrella policy is the best thing under those circumstances. Not leagal advice but check with an attorney and let them know what you are doing and if an LLC is best for your stratagy.