Transfer Tax in Philadelphia

11 Replies

Hello BP!

I bought a few houses in Philly with a traditional mortgage. due to that, I had to take title with my name. 

Now I'm starting to form an LLC for each of my units and my question is:

Am I subject to transfer tax (%4.05) when I transfer the deed from my name to the LLC's name? I know there's different answers in different states. would love to hear what you know on the subject.

Many thanks,  

We bought a building in western PA.......and found out about the tax at closing.  We cover 2/3 of the tax when selling to our fractional investors as a way to mitigate the hurt.

@Tomer Shani If you are worried about liability, why not just purchase insurance with a high liability coverage, or get an umbrella policy to increase your liability.  In my opinion it is just not practical to transfer to an llc, especially because your loan would be callable on transfer.

Thanks for the response guys.
Yuriy, can you explain a little bit what is the CLR?
I went to the link and read everything but I still don't understand what it is or how to apply it.

I'm not concerned about liability. My accountant set up loans btw myself and the LLC that will protect me incase of a lawsuit. What I'm concerned about is privacy. If someone is looking me up online and see all the properties I own.

@Tomer Shani

Yes, you have to pay realty transfer tax. What @Yuriy Skripnichenko mentioned has to do with a kink in the Pennsylvania Constitution that makes it very difficult for municipalities to reassess properties. Basically, the PA Constitution has something called the Uniformity Clause. Among other things, this means that municipalities must reassess properties in a uniform matter against all owners. This is why some counties in Pennsylvania have not done a reassessment for more than 50 years. This often creates interesting results when it comes to taxation. 

But long story short, you will basically need to pay a transfer tax that is based on what the property is "worth." In this situation, I believe the PA Department of Revenue can point to the assessed value or the value based on your recent purchase price. 

If you are really worried about privacy, you may want to look into transferring the property to a trust. You'll have to worry about both transfer tax issues and also due-on-sale clause issues. I believe it is doable in most circumstances. Note that forming the relevant trust won't really help you with reducing liability --- but it sounds like that's not your aim. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

@Chris K. Thank you so much. I always try to understand the core of the issue. looks to me like these properties will remain on my name until I decide to sell them. 

Also, my friend owns on of the best restaurants in Wilkes-Barre! Le Manhattan Bistro. Strongly recommend you'll check it out! 

@Tomer Shani

@Chris K. is absolutely right. Basically CLR means that you will pay transfer tax from the "market" value of the property. 

Also after you transfer your property in LLC anyone will still be able to look up your name and see that you've owned the property. And then if they really trying to dig in look up the company that owns the property and see who is the owner of the company.

@Yuriy Skripnichenko  

So basically you're telling me that if you didn't do that from the start there's not much of a point to that later on during your owning years. 

 How does the "Market" value being determined? solely based on the previous purchase or appraisal?  

@Tomer Shani

I have couple properties that I bought in the beginning of my investing and still have them in my name. I personally think there is no point to change ownership now. However, I'm sure you'll find a lot of investors here who would disagree on this with me.  

To find the value that you will pay transfer tax on you basically need to use formula whichever is grater either amount you pay+other consideration or county valuation multiplied by CLR. 

The transfer tax certification form may be useful and brake it down for you. You can find transfer tax form here:

http://www.phila.gov/records/pdfs/cityRtt82-127_Int.pdf

@Tomer Shani

Small world! It's a very nice restaurant. 

If privacy is very important, you might be able to rely on a revocable living trust to avoid triggering transfer taxes and the due-on-sale clause. Now you can probably see from my old posts that I'm not exactly a fan of investors using trusts unless they have a good reason. Protecting privacy might be a decent reason. 

Just note that there is a limit to the anonymity. The trust may help you having from having your tenants or a curious neighbor from finding out that you own the property. But it probably won't help against people who know what to look for. For example, a trained attorney can easily find your information even if you create a trust. In fact, that's true even if you use an LLC.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

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