To Quit Claim to LLC or not?

Question

I know there are some posts about this on the forum already but I hadn't seen any specifically about Florida.  It also seems there are some different takes on it.  During due diligence on multiple properties I have been looking at it seems very common for people to buy and then quit claim the deed to an LLC.  This makes financing easier (**enter the due on sales clause arguments**) but I wonder about the commingling side of things and I am confused about how you account for it on taxes if you are a multi person LLC.  Seems like things get confusing.  Hopefully some of you can help me out since I have some offers drafted I just need to figure out what name they will go under!

Randy Thomason · Answer

Better be careful if ever audited.  According to my CPA if you QC it to your LLC you will be doing one of two things.  1- You are making a capital contribution if you don't get paid for it or 2- you do a note from the LLC to you.  An asset cannot just magically appear in your LLC. Assets are purchased for somewhat of fair value.  Anything not purchased or a loan made to the LLC is a contribution.

Most will never have a problem but if you get an audit, the IRS will almost always catch you and make you account for it appropriately and that will bite you in the Butt!

and since it is a multi person LLC that makes it even more important that you account for it right or your "contribution" could be split multiple ways and you lose.

Scott Smith · Answer

I would recommend looking into a Warranty Deed, as opposed to a Quit Claim Deed, in order for you to maintain Title Insurance.  Most Title Insurance companies will cease to offer insurance if a Quit Claim Deed is used for the transfer as the Quit Claim Deed offers no warranties as to clean title. Just some thoughts - would ask around before pulling the trigger on it.

This is not legal advice, just my opinion as a real estate investor.

Nick Macklin · Answer

the contribution would be split multiple ways in the beginning anyway so it would all come out equal if audited. It would basically be me and my wife contributing half and my parents contributing half.  then going to the same 4 people but as an LLC.  We are just trying to protect our other assets if sued.  I also would like to make the tax accounting easy as well (if it complicates anything at all: like the depreciable basis).