LLC Paying the Mortgage in My Name

15 Replies

Hello,

I have a question about LLCs and how to pay the mortgage. I purchased a property in my name and decided to rent it out. I have just created an LLC for the property, but the mortgage is still in my name.

Can I have the LLC pay the mortgage even though it is in my name, or should I call the lender and ask them to add the LLC to the mortgage? How exactly will that work.

Any help would be very appreciated.

Thank you,

Jennifer 

The mortgage co probably won't care if your LLC makes the payments. Better to beg forgiveness than ask permission here. Do not call and ask to have your LLC added to the mortgage. You will be calling a cubicle dweller in whatever country that is apathetic and uninformed and you will scare them! At tax time, just don't try and deduct mortgage interest for your LLC. Take it personally. Good luck @Jennifer Alcide !

I agree, I have been paying mortgages on my rental properties using my LLC checking account. never had a problem with the mortgage company. If your check cashes, they are happy!

Thank you guys. That makes sense.  I just needed the confirmation.

Originally posted by @Steve Vaughan :

At tax time, just don't try and deduct mortgage interest for your LLC. Take it personally.

Curious about this. First, isn't the LLC just a pass through entity? This is at least the case for single member LLCs. Second, even if it weren't, why wouldn't you take the tax break against your corporate entity? It is a legitimate business expense.

That is how I understand it anyway, and my CPA agrees when he does my taxes.

What purpose is your llc serving? If the house is in your name what are you expecting in the way of protection?

Originally posted by @Steve Vaughan  At tax time, just don't try and deduct mortgage interest for your LLC.  Take it personally.  Good luck @Jennifer Alcide !

Don't do this. You can not deduct expenses of your rental property on your 1040. This interest expense has to go on your Schedule E. 

Hello,

@Shawn Thom - The property is in my LLC for liability issues I just transferred it over. The mortgage is in my name

@Rob Beland - Can you give me advice on what would be the most tax advantage way to set this up?  Especially since the mortgage is in my name?

Thank you all, 

Jennifer 

taxes are pass through, you shouldn't expect any tax advantages with an llc set up this way.

also, you shouldn't expect any protection from the LLC for the property when the mortgage is in your personal name. This is one downfall of an LLC when using traditional mortgages as there is technically no legitimate way to get the existing mortgage in the LLC name.

Originally posted by @Jennifer Alcide :

Hello,

I have a question about LLCs and how to pay the mortgage. I purchased a property in my name and decided to rent it out. I have just created an LLC for the property, but the mortgage is still in my name.

Jennifer - So far, nobody has asked you to explain what your goal is in doing this.  That sort of baffles me... a bunch of advice is dispensed, yet nobody know what you're actually trying to achieve.

Anyone (including an entity) can pay anyone else's mortgage. Your neighbor could pay your mortgage; however, you would not be entitled to claim any interest deduction (when applicable), and neither would your neighbor (since he's not signatory to the mortgage). In the case of an LLC which is set up as pass-through to you, this does not apply.

However, what is your purpose in having the LLC pay the mortgage? Since the LLC does not actually own the asset, it receives no limited liability protection. There seems to be no purpose - and certainly no legitimate business purpose - in your LLC. As such, it's the same as you paying the mortgage directly.

Originally posted by @Jennifer Alcide :

Hello,

I have a question about LLCs and how to pay the mortgage. I purchased a property in my name and decided to rent it out. I have just created an LLC for the property, but the mortgage is still in my name.

Jennifer - So far, nobody has asked you to explain what your goal is in doing this.  That sort of baffles me... a bunch of advice is dispensed, yet nobody know what you're actually trying to achieve.

Anyone (including an entity) can pay anyone else's mortgage. Your neighbor could pay your mortgage; however, you would not be entitled to claim any interest deduction (when applicable), and neither would your neighbor (since he's not signatory to the mortgage). In the case of an LLC which is set up as pass-through to you, this does not apply.

However, what is your purpose in having the LLC pay the mortgage? Since the LLC does not actually own the asset, it receives no limited liability protection. There seems to be no purpose - and certainly no legitimate business purpose - in your LLC. As such, it's the same as you paying the mortgage directly.

@Lew Payne I agree her purpose for establishing this whole process should be addressed, @Shawn Thom  asked this very question directly and @Alexander Felice pointed out there are no real benefits to doing this. For me, it wasn't her question and there are ad-nausium amounts of should I set up or not set-up an LLC +/- , pro/con, especially since podcast 109. One can view one of those. Now that she's there, some of us are just trying to keep her out of obvious tax trouble. She will have to claim the 1098 mortgage interest deduction on her 1040 SchE since it will be named personally, not the 8825. Wait, she doesn't own it anymore. The 1065 (if multi-member) in general will be difficult as it is a partial year deal and most likely without a capital expenditure for the purchase. The only one who will benefit from all this is her accountant, IMO. Haven't even discussed the insurance problems still in the dark closet. Insurers do not like it when beneficiaries don't own the property. Just ask @jeff s. People, don't do this!

Originally posted by @Jennifer Alcide :

Hello,

@Rob Beland - Can you give me advice on what would be the most tax advantage way to set this up?  Especially since the mortgage is in my name?

Jennifer for tax purposes there are no real advantages to having a single member LLC vs. being a sole proprietor when it comes to owning investment properties. It's not to say that there aren't any tax advantages but you are talking about very specific situations such as the utilization of a self-directed IRA for example. 90% of the people here on BP won't need or won't utilize that benefit. A SMLLC is not recognized by the IRS as a separate entity. All income and expenses for a rental property held in an LLC are recorded on a Schedule E and carry over to your 1040. Typically, the reason you will see here on BP for setting up a SMLLC that will be owning investment properties and nothing else is for asset protection. That's a debate for another day.

Originally posted by @Steve Vaughan :

@Lew Payne I agree her purpose for establishing this whole process should be addressed, @Shawn Thom  asked this very question directly and @Alexander Felice pointed out there are no real benefits to doing this. For me, it wasn't her question and there are ad-nausium amounts of should I set up or not set-up an LLC +/- , pro/con, especially since podcast 109. One can view one of those. Now that she's there, some of us are just trying to keep her out of obvious tax trouble. She will have to claim the 1098 mortgage interest deduction on her 1040 SchE since it will be named personally, not the 8825. Wait, she doesn't own it anymore. The 1065 (if multi-member) in general will be difficult as it is a partial year deal and most likely without a capital expenditure for the purchase. The only one who will benefit from all this is her accountant, IMO. Haven't even discussed the insurance problems still in the dark closet. Insurers do not like it when beneficiaries don't own the property. Just ask @jeff s. People, don't do this!

Exactly, Steve... the hype in real estate these days is "LLC," even if there's no legitimate business purpose to one. Even some of the podcasts (and certainly the threads) on here seem to make outrageous and erroneous claims, comprised of half-truths.

Of course, answering a question without any context is an invitation for disaster. We don't know if it's a SMLLC or MMLLC that she intends to form, if she's making a sub-s election, if the LLC is owned by her or her trust, etc. I think someone else blatantly said the IRS would not recognize the LLC as a separate entity, which again is incorrect depending on context (given the various elections, including sub-s and c, that are available to it). I'm sure you see how confusing it must be for a newcomer on here, with all the conflicting advice (a lot of it blatantly wrong or missing context) that is dispensed.

I tried to make a longer post, describing a lot of the situations in which this (the LLC idea) would fail, but the server kept timing out and giving me an error. Alas, you've filled in some of the blanks and given her some food for thought. Thanks.

Originally posted by @Jennifer Alcide :

Hello,

@Shawn Thom - The property is in my LLC for liability issues I just transferred it over. The mortgage is in my name

@Rob Beland - Can you give me advice on what would be the most tax advantage way to set this up?  Especially since the mortgage is in my name? 

Hi Jennifer - How did you "transfer" the property over to your LLC? The only legal way to do that is to record the transfer with the County Recorder's office (via a grant or warranty deed, depending on circumstances). If you did that, did your lender consent to it? Did you give your lender the required notice and obtain their consent prior to doing this?

12 C.F.R. 591.2 says the due-on-sale clause is triggered by:

The due on sale clause is a real thing, however I've never heard of it getting called when title goes to an llc that is owned by the mortgager. 

banks typically don't want to foreclose and then have to deal with a toxic asset. REO's are a problem for their portfolios- so as long as the payments are being made you're probably at pretty low risk of the loan being called

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