Avoiding transfer tax with transfer to LLC

4 Replies

I know a lot of people write on here about transferring title to an LLC after closing. I'm curious - is everyone paying the transfer tax when they do this? It's particularly onerous in Pennsylvania, which charges a transfer tax of 2-4% of the property's value, depending on which PA jurisdiction (I believe this to be one of the heftiest transfer taxes in the nation).

There are a few cases in which you don't need to pay the transfer tax, but transferring title from personal name to LLC is NOT one of those exceptions. According to (c)(1) below, if you were transferring the property into a living trust (per the St Germain Act), the transfer WOULD be exempt from transfer tax IF you were PERSONALLY listed as the beneficiary. If, however, your LLC (which is of course a separate entity from you personally) is the beneficiary (which is what you need in order to gain the desired asset protection), then you must indeed pay the transfer tax:

https://www.pacode.com/secure/data/061/chapter91/s91.156.html

This is state dependent. I believe in FL for example, if there is a mortgage attached, then no way to avoid transfer tax. Good question for an attorney.

@Mark Miles

As a general rule, it's hard to avoid Pennsylvania Realty Transfer Tax when transferring from an individual to an LLC.

Note that the section you refer to doesn't strictly have to do with the St. Germain Act. The scope of it is arguably broader. There have been a few interesting caselaw on what exactly constitutes a "living trust." 

Dislaimer: 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 for legal advice. Always consult with your attorney before you rely on the above information.

Originally posted by @Mark Miles :

I know a lot of people write on here about transferring title to an LLC after closing. I'm curious - is everyone paying the transfer tax when they do this? It's particularly onerous in Pennsylvania, which charges a transfer tax of 2-4% of the property's value, depending on which PA jurisdiction (I believe this to be one of the heftiest transfer taxes in the nation).

There are a few cases in which you don't need to pay the transfer tax, but transferring title from personal name to LLC is NOT one of those exceptions. According to (c)(1) below, if you were transferring the property into a living trust (per the St Germain Act), the transfer WOULD be exempt from transfer tax IF you were PERSONALLY listed as the beneficiary. If, however, your LLC (which is of course a separate entity from you personally) is the beneficiary (which is what you need in order to gain the desired asset protection), then you must indeed pay the transfer tax:

https://www.pacode.com/secure/data/061/chapter91/s91.156.html

Keep in mind. Some states don't tax transfer to SMLLC.