Transferring property from an single-member LLC to yourself

13 Replies

I would like to transfer my Lakehouse out of the LLC to myself. I have around $65,000 invested in the property. I have a $75,000 line of credit against it. During getting The line of credit on the house in appraised for $120,000. What is the minimum amount I could charge myself for the house.

Follow up question do you think my bank which holds the commercial loan will have a problem with this transaction. Obviously I'm not looking to pay back just yet

I don't believe you can, nor is there any reason to, sell the house to yourself. For tax purposes the SMLLC is not recognized by the IRS and all of your income and expenses are reported on a Schedule E and flow through to your 1040 correct? Assuming your lender approves, you would have to deed the property to yourself but there wouldn't be any sale price. I'm not an attorney but I believe in an older similar thread it was determined that you can't create a taxable situation for yourself or something along those lines. As an example, if you had a property held in an LLC for 28 years and it was fully depreciated you couldn't then sell it to from your SMLLC to yourself and then depreciate it again. You already receive the benefits of owning the property in the SMLLC so it's just a matter of paperwork to transfer the deed to you personally.

you don't "sell the property back to yourself". You simply execute a warranty deed and put it back into your name. I have done this several times with my properties for refinancing purposes. 

Couple thoughts - you may trigger a due on sale clause with your lender because your LLC is not the same as you individually, so you will have legally transferred ownership. Ask the lender first.

Second thought - I'm curious why you couldn't simply keep ownership as is? If you are looking to use the property for personal use, there might be a way to handle the accounting properly, maybe show that you took a "draw" from the LLC. I would discuss this with your CPA in more depth. My first thought is that you might be making this more complicated than it needs to be, but I don't know enough about your situation or why you are looking to transfer it, so I am merely speculating.

@Gene Mitchell

 I don't understand how safe this is from an tax perspective.  The business has invested 65k into the home.  The transferring of title to myself would be kind of like a 65k draw from my business bank account.  That sounds great.  Basically the business would show no loss or gain on the property. 

The concern is that I have been told the IRS requires you must pay fail market value on such transfers.  Meaning the business would need to show a capital gain of 55k on the transfer to myself, assuming the market value is 120k and the business's current investment is 65k.  

To all of this, I am not sure and that's why I ask.

@Adam Johnson

I have been told that if you pay your operating expenses out of your own pocket, such as insurance, water and electric and let your llc cover insurance and taxes; the IRS will let you use such property for personal use. 

I currently have too many assets under this LLC and wish to move the house under my own name. So primarily for asset protection/equity stripping.

Robert, the irs disregards the LLC for tax purposes. Everything flows thru it to the LLC owner, which I assume is you. Therefore there is no tax event from changing the deed. But, since I am not an account or tax lawyer, you should seek clarification from one.

Best advice I can offer is to call your CPA. This question has a lot of moving parts and I think you will get a much better answer from somebody familiar with all of the details.  Posting here may get you a list of items to address with your CPA, but ultimately the best answer will find you seeking professional and fully informed advice!

Best of luck.

Thanks for the advice everyone  

when you transfer it to yourself is it considered a gift, or a sale/ purchase?

@Benjamin Chavez - Unless you elect otherwise, a single member LLC is disregarded for income tax purposes (a disregarded entity). this means that as far as the IRS is concerned any transfer of property between a disregarded entity and its owner is not a transaction at all. Not a gift and not a sale. There is no tax effect and no reporting required to the IRS.

@Benjamin Chavez : transferring from your LLC into your own name or vice versa is ignored by the IRS.

They care about that as much as you taking $20 from your right pocket and putting it into your left.

A SMLLC defaults to a disregarded entity. If the property is encumbered you may have transfer taxes not an IRS issue, a state issue. Your states laws may exempt the transfer from taxes since it is a disregarded entity. You need to check that out or talk to a CPA or lawyer.

I'm also wondering about the ability to sell a house to yourself, but for other reasons. I want to start rehabbing homes, I thought the safest way would be to start an llc, procure the funds do the rehab then sell to myself at ARV, since we're also in the market for a house and pre-approved through a lender. But looks like Uncle Sam is a hater.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.