Pros/Cons of deeding a property to an LLC

Investor · Colleyville, TX · Member since 2012 · 70 posts · 7 votes

I purchased a SFR property years ago and I financed it under my personal name. I then transferred the deed to my LLC. My CPA advised me to transfer it back to my name and not leave it in the LLC. His reason was that I would be better off from a tax standpoint, I am not 100% certain I agree with him. Any shared experience in this space is appreciated.

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Joe SplitrockPro Member

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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

10y

Originally posted by @Sib Bahjat:

I had similar discussion with my CPA and he advised me there is no tax advantage to having my property in an LLC, since I am the sole owner. The only tax advantage I could imagine to keeping it personal is less paperwork. I would be interested to hear why he feels you are better from a tax standpoint? I am not sure I agree with another post that you should fire your accountant, but asking for an explanation is a good idea.

Most people push into LLC due to either partnerships or for liability protection. I have heard that an LLC provides only a thin layer of protection from liability. I was advised to just spend money on a good liability umbrella policy. For a small operator, the LLC requirements definitely take extra time/money and I see myself getting little benefit.

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Brian Nostrant
Investor · Livingston, MT · Member since 2016 · 16 posts · 16 votes
10y
Sib, What is the property used for? Rental? Primary residence? secondary residence? VRBO?
Best,
Brian
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Sib Bahjat
OP
Investor · Colleyville, TX · Member since 2012 · 70 posts · 7 votes
10y
Hi Brian,
The property is being used as a rental.
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Kory Thaut
Investor · West Linn, OR · Member since 2015 · 100 posts · 58 votes
10y
@Sib Bahjat I wish I had a $1 for every time my CPA and attorney disagreed on something. I assume you're primary objective for using an LLC is asset protection? There are also tax advantages running your operations as a business but it could mean more work for your CPA (and you).
Personally, I've weighed this all out between my CPA and attorney and chose to run all of my operations as businesses (a few SFRS and working on a plex now). And yes, it causes a little more work for the CPA... but I am sure he charges me for it anyway.
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Brandon Battle
Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
10y
Tell your CPA no thank you and if he squawks,fire him and get a better one.Always protect your assets,always.
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
Originally posted by @Sib Bahjat:

I purchased a SFR property years ago and I financed it under my personal name. I then transferred the deed to my LLC. My CPA advised me to transfer it back to my name and not leave it in the LLC. His reason was that I would be better off from a tax standpoint, I am not 100% certain I agree with him. Any shared experience in this space is appreciated.
I had similar discussion with my CPA and he advised me there is no tax advantage to having my property in an LLC, since I am the sole owner. The only tax advantage I could imagine to keeping it personal is less paperwork. I would be interested to hear why he feels you are better from a tax standpoint? I am not sure I agree with another post that you should fire your accountant, but asking for an explanation is a good idea.
Most people push into LLC due to either partnerships or for liability protection. I have heard that an LLC provides only a thin layer of protection from liability. I was advised to just spend money on a good liability umbrella policy. For a small operator, the LLC requirements definitely take extra time/money and I see myself getting little benefit.
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Sib Bahjat
OP
Investor · Colleyville, TX · Member since 2012 · 70 posts · 7 votes
10y
I appreciate all the feedback. I will circle back if anything worth while.
Enjoy the rest of your week everyone.....
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Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
10y
There is no tax advantage to holding rentals in an LLC vs in your own name. It's all taxed exactly the same and, if it's a single member LLC, uses the exact same form (Schedule E). If you had two people's Schedule E's in front of you - one who owned their property in an LLC and one who owned them in their own name - you would not be able to tell the difference between the two except one of them would have an additional amount for "Business Licenses and Annual Filing Fees".
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Billy Smith
Shawnee Mission, KS · Member since 2016 · 719 posts · 313 votes
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Yes a L.L.C can be cracked by a decent lawyer better off with a umbrella .
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Pat Giblin
Downers Grove, IL · Member since 2015 · 19 posts · 3 votes
10y
Just looking for further elaboration on the subject, what are everyone's opinions on the tax advantages of deeding with an LLC when there are several partners involved? Does it simplify tax filing instead of having to account for all the separate individual transactions?
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Al Wilson
Investor · Daphne, AL · Member since 2014 · 1k+ posts · 242 votes
10y
If you have multiple parties involved as owners, you definitely need an entity. Equally important, the entity needs a carefully drafted Operating Agreement (or equivalent, depending on the type of entity). Good luck.
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Account Closed
Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
@Sib Bahjat
I would be inclined to ask your CPA, what tax advantage he is referring to. Should have zero impact on your taxes. Furthermore you would be hard pressed to find any attorney suggesting you hold a rental property in your own name.
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Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
10y
@Sib Bahjat, the only reason I can think your CPA means by you holding the property directly rather than in an LLC is that LLCs is subject to the Texas Margin Tax but individuals are not. Therefore, by holding the property directly, you will not be liable for Texas Margin tax. As others have stated above, there is no difference for federal income tax purposes.
That being said, your business structure should not be influenced solely by tax implications. Asset protection is no joke. Make sure you talk to a qualified attorney about your gameplan.
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Mike F.
Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
10y
Is there still a mortgage on the property? Banks won't let you transfer a personally guaranteed property into an LLC.
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Christine T.
Investor · Palm Harbor, FL · Member since 2015 · 86 posts · 18 votes
10y
Originally posted by @Linda Weygant:

There is no tax advantage to holding rentals in an LLC vs in your own name. It's all taxed exactly the same and, if it's a single member LLC, uses the exact same form (Schedule E). If you had two people's Schedule E's in front of you - one who owned their property in an LLC and one who owned them in their own name - you would not be able to tell the difference between the two except one of them would have an additional amount for "Business Licenses and Annual Filing Fees".
Thank you sooo much for this information!
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Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
10y
Originally posted by @Pat Giblin:

Just looking for further elaboration on the subject, what are everyone's opinions on the tax advantages of deeding with an LLC when there are several partners involved? Does it simplify tax filing instead of having to account for all the separate individual transactions?
When there are several partners, I think holding the property in an LLC then becomes easier in two ways:
1. The deed. While it's not difficult, it is cumbersome to hold a deed as Joe Smith, 22%, Mary White, 10%, Bob Johnson, 13.2%, Carol Black, 16.7% etc, etc. So much easier on everybody to hold a property as ABC LLC for all involved. Particularly if there's a change in ownership percentage down the road. My understanding (at least in Colorado), is that if you are going to hold property as something other than tenants in common or joint tenancy and there are more than two people, you have to list out their names and ownership percentages in the deed. (If somebody can confirm that, that would be great).
2. Tax filing - absolutely easier to file an LLC tax return and then pass out K-1s when you've got more than two partners than having each partner take the P&L and balance sheet, figure the percentages, pass that out to each partner, then hope like hell that each partner uses their correct basis portion for depreciation, etc. It's very hard for somebody to screw up entering a K-1 on their tax return.
I'm not saying it can't be done and I'm sure it's done every day. It just makes things clunky and unwieldy.
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
Originally posted by @Logan Allec:

@Sib Bahjat, the only reason I can think your CPA means by you holding the property directly rather than in an LLC is that LLCs is subject to the Texas Margin Tax but individuals are not. Therefore, by holding the property directly, you will not be liable for Texas Margin tax. As others have stated above, there is no difference for federal income tax purposes.
That being said, your business structure should not be influenced solely by tax implications. Asset protection is no joke. Make sure you talk to a qualified attorney about your gameplan.
Great insight. I was just looking at it from a Federal tax level.
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Kory Thaut
Investor · West Linn, OR · Member since 2015 · 100 posts · 58 votes
10y
@Sib Bahjat @Joe Splitrock @Billy Smith
Umbrella's are good only after you've settled / lost. I personally want to avoid getting to that point all together. Part of the value of the LLC is that it makes it more challenging for would be attackers and can deter the initial attack all together. Sure, any good lawyer can poke a hole, but in a lot of cases there is no value to the lawyer in doing so... which translates to them advising their client to move on. Depending on a state's charging order laws, they could still win a lawsuit and essentially never see payment from the asset.
In a state like mine, Oregon, it's only $100/yr filing fee per LLC so it's really been a simple decision for me.
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Pat Giblin
Downers Grove, IL · Member since 2015 · 19 posts · 3 votes
10y
Linda Weygant thank you for the thorough response. This led me to another question though... If you purchase a property with an LLC, a new LLC with no history, how does the bank underwrite the risk? Would a bank even allow an LLC to use a conventional loan?
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Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
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Originally posted by @Pat Giblin:

Linda Weygant thank you for the thorough response. This led me to another question though... If you purchase a property with an LLC, a new LLC with no history, how does the bank underwrite the risk? Would a bank even allow an LLC to use a conventional loan?
That's a great question. For the LLCs I am a part of, the bank required a personal guarantee from at least one member.
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Corey Melkonian
Real Estate Agent · Watertown, MA · Member since 2015 · 366 posts · 77 votes
10y
Hi Pat,
When you purchase a property with an LLC the bank will still require a personal guarantee. They still have my personal guarantee even though I've been using the same bank for the past decade.
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Pat Giblin
Downers Grove, IL · Member since 2015 · 19 posts · 3 votes
10y
@Linda Weygant @Corey Melkonian, thank you for your replies. So the bank is going to use the person who signs the guarantee as their risk assessment? In other words, if 3 people are equal partners in an LLC, the lender can use one of those people to determine their risk factor?
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