My wife and I have a rental property in our name. I am creating an LLC, both of us as members, to take advantage of the 20% deduction on pass-through income (rental income) introduced in the new tax bill effective Jan 1, 2018. The mortgage, title and insurance are in our name. Are we required to transfer the mortgage/title/insurance to LLC? Or it is fine to collect the rent in our name and deposit into the LLC's business account and pay for any expenses from the same account?
There are threads on the new tax law. You dont need an LLC for the 20% pass through deduction. Those threads are a good read.
The only issue for the IRS would be who is on title for the property. The mortgage and insurance don't matter to the IRS.
However, the mortgage has a "due on sale clause. The lender can (but usually doesn't) call the loan due because the property has transferred. If you transfer the property, the insurance will do you no good unless it is transfered to the new owner. Any title insurance will also be of no good to the new owner. You would have to get new title insurance for the LLC if you want it.
It would be good practice to have an addendum to the lease to be signed saying that the LLC is the new landlord and any payments should be made to the LLC. Addendum or nat payments should be to the new company not your personal names.
I am not an attorney and the above is not to be considered legal advice. It is just my laypersons understanding of the law.
the legal perspective here - Getting rent checks in your name, even if you later put into the LLC accounts, would be commingling of funds and would lose the liability protection of LLC law (which is main reason to have an entity in the first place)
Thank you very much to all of your replies.