Hello Biggerpocket community, I'm an investor from Charleston, SC.
What is the "right way" to transfer the deed of an investment property acquired in your personal name into your LLC's in SC?
Is it as simple as a quitclaim deed or should it be a grant/warranty deed? Also, what are the tax implications, especially regarding depreciation if the deed is in one's LLC's name? My CPA suggested I need to make sure the transfer price is the same as the cost of my original purchased. How do I properly document that with the title transfer?
I'm currently reading Sutton's book "Loopholes of Real Estate" (pages 184-187) and he suggests transferring using a grant/warranty deed instead of a quitclaim deed. His rationale, if I follow him correctly, seems to be that it produces a cleaner chain of title but also it doesn't void the title insurance policy on the original warranty deed in my name.
I had originally contacted a couple of well known real estate attorneys in my area about transferring the title into my LLC's name and both suggested a simple QCD. None of them even mentioned a warranty deed or brought up anything like that to my attention.
If the last two deeds were both quitclaim deeds then you have to do a QCD, unless you do a full title search. Regarding cloud of title for a cleaner chain of title, it's always better to do a warranty deed. A warranty deed also indicates if there are exceptions to easement, set-back lines, restrictive covenants (aka property development, etc.) and items such as this.
There is no cut and dry correct way because it really does depend on what they last two deeds stated. The preferred method is the warranty because it does give you a clear and direct title.
As far as structure, I will always recommend transferring into a Series LLC structure and getting a CPA who is familiar with maximizing the tax benefits for this. As long you set up a traditional LLC to be your pass-through entity and not an S Corp then the tax implications should not change drastically if at all.
Thank you @Jennifer Gligoric . Just to clarify, I took title in my name with a warranty deed. I've finally found a good local attorney who is going to help me with the title transfer using a warranty deed. He seems very thorough. The previous two attorneys I've spoken to just wanted to do a QCD, they didn't see the point in me wanting a warranty deed for this type of transfer. Price-wise there seems to be no difference either.
Do a warranty deed. Some title companies will expressly authorize transfer to an LLC without voiding the title warranty, however some do not. In the later case, if you have a warranty deed signed, and later a problem arise on the title that was preexisting the transfer, your LLC can "sue" yourself and you in turn can go back to your title company insurance.
If you had a QCD instead, your LLC will have no recourse against you and your original title insurance will deny the claim as your LLC is not the insured party.
Taxwise, if is it single member LLC and you are the member, it is disregarded for the IRS and there will be absolutely no change in the tax basis and depreciation schedule. Do not put an artificial price on the deed but instead a $10 value or whatever minimum is customary in your jurisdiction, if not your property appraiser may reassess the value of the property to the max allowed, voiding any tax rise protection that some states have (I don't know if it is the case in your state). In some county you may have to notify the property appraiser that there was no change in beneficiary to avoid this problem.
If you want another real estate lawyer point of you on that topic watch Clint Coons Youtube video.