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Updated almost 9 years ago on . Most recent reply presented by

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Edward Stephens
  • Realtor and Investor
  • Leawood, KS
78
Votes |
165
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Forming LLCs for a Duplex House Hack

Edward Stephens
  • Realtor and Investor
  • Leawood, KS
Posted

Dear BP Community,

I am buying both units of a duplex, leasing one unit to someone else and living in the other. I’m taking a hardship withdrawal from my 401(k) to fund the purchase. Any comments regarding my decision to use my 401(k) to finance the purchase should be directed here. The details of the deal can be found here. If the deal goes through, I will inherit a tenant from the previous owner.

I am in the process of forming an LLC (we'll call it LLC #1) to hold the property's title. I will also be forming another LLC (we'll call it LLC #2) to act as the property manager.

Question 1: Is it possible to transfer title from me to LLC #1 a few days after closing, or am I disqualified from doing that because of my situation (see above links)?

Questions 2: What important aspects am I not considering?  (I don't know what I don't know.)

Question 3: What are the advantages and disadvantages of forming two LLCs to accomplish the objectives I’ve stated above?

Let me know if this post is unclear or if you need more information. I will read every reply and will try my best to respond to them all. Thanks in advance.  

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Mark Nolan
  • Professional
  • Carlsbad, CA
1,381
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Mark Nolan
  • Professional
  • Carlsbad, CA
Replied

@Edward Stephens


@Edward Stephens

I'm curious to know how your distribution qualified for a hardship as it does not to seem to fall under the immediate financial need category but rather for investments purposes. 

Here is what the code says. "For a distribution from a 401(k) plan to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need."

"Whether a need is immediate and heavy depends on the facts and circumstances. Certain expenses are deemed to be immediate and heavy, including: (1) certain medical expenses; (2) costs relating to the purchase of a principal residence; (3) tuition and related educational fees and expenses; (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence; (5) burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee's principal residence. Expenses for the purchase of a boat or television would generally not qualify for a hardship distribution. A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee."
(Reg. §1.401(k)-1(d)(3)(iii))

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