New investor here, I hope you can help me clean up this mess! I'm just finishing up a remodel on my first property which I was originally planning to flip. At the time, my brother and I created an LLP for the property, as a partnership where we would both share in profits (he provided labor, I provided cash). This was before I had obtained the services of an accountant to keep me from making making mistakes like this! Anyway, I've decided I want to retain the property for myself as a long-term rental. However, to get a mortgage, and claim tax benefits in my own name, it seems that I would need to do a quit-claim deed to put the property fully into my name (currently both my name and the LLP entity are on title). However I've also read that I would lose title insurance on the deed, which would make it difficult to get a loan. I'm not sure what the best thing is to do.
My accountant said he could work with it either way, but couldn't advise me as far as specific legal/mortgage loan requirements go. Hopefully someone here can give me a little guidance! Thanks!
@Jason Hillier you need a Washington state attorney and CPA's advice on the correct answers. I can tell you how it works in my state and the general (federal) tax concerns.
The partnership (LLP) would need to agree to transfer the property to you or an entity you own (such as an LLC) under terms that wouldn't equate to a gift. Whether you chose to transfer (and how to execute the transfer) the property to you personally or an entity is an asset protection decision that you have to make with your legal and tax advisors.
The LLC option would allow you to receive the tax benefits just like it was in your name if you DO NOT elect to be "an LLC taxed as an S Corp." The other option (which I use) is to have the LLC taxed as a "pass through entity." That's another detail to discuss with your legal and tax advisors.
I'm just discussing how this works where I am. No legal or tax advice! :-)
Thanks Robert, I appreciate your answer!
Chiming in a little late here.... We live and invest in Washington State.
Some lenders require the property to be in a individual person's name to get a conventional loan. If it is in an LLC it may require a commercial loan, which will likely call for a higher interest rate. We run into this when purchasing properties because we operate our business with two LLCs. Our first LLC is a partnership with my husband's parents and sister-in-law. Our second LLC is owned by just me and my husband. If you borrow as an individual and then quit claim to an LLC you run the risk of violating the terms of the loan and it could be called due. We've done this and haven't had any loans called, but it is risky.
Usually we just keep a property in our own name until it is paid off and then we move it into the LLC. Or we find a lender who is okay about it being held in an LLC. Shop around for the best loan, lender's terms really vary. Also, find yourself a good title company and establish a relationship with a top notch escrow officer with that firm. They can be worth their weight in gold. They know the loan officers at various financial institutions that are the most competent. The escrow officer is the one who brings it all together for you between buyer and seller. Good luck!