I currently own a rental property in Nebraska, and the title is under my personal name. I am considering forming an LLC and transferring the property into the LLC, primarily to help protect my personal assets from liability related to the rental property.
I would appreciate any guidance from investors, attorneys, lenders, or anyone who has gone through this process in Nebraska.
My main questions are:
If I form an LLC now, do I need to transfer ownership of the property from my personal name to the LLC in order to receive the liability protection benefits?
If a transfer is needed, how difficult is this process in Nebraska?
Since the property currently has a mortgage, do I need to contact my lender first and get their approval before transferring the property to the LLC?
Does this transfer require a formal closing process? If so, should I expect to pay closing costs similar to what I paid when I originally purchased the property?
Any advice, experiences, or suggestions would be greatly appreciated. Thank you in advance.
I would suggest you not to do that. You can get a better protection buy simply buying an umbrella insurance. An attorney will always tell you, that having LLCs are good. But if you own the LLC 100% I am not sure how much it will save you. Having Umbrella insurance will give you an actual insurance that will cover the liability up to the insured amount such as ($1M). Secondly, yes, you are supposed to tell your lender and at that point the lender will say, this amounts to a 'sale' and please give me all my money back immediately. Nothing to do with Nebraska, that's how lenders work across the nation. The assumption I have here is that it's a 1 to 4 unit property. If it's 5 unit or above, your lender will be willing to accept a LLC.
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
6d
Mohammad, I'd separate the liability question from the tax question, because forming an LLC and transferring the property into it are related but not the same thing.
If the rental is still titled in your personal name, simply creating an LLC by itself generally does not move ownership of the property into that entity. If the goal is for the LLC to actually own the rental, you'd normally need to transfer title properly, and I'd have a Nebraska real estate attorney handle that rather than treating it like a simple administrative change.
Since there is already a mortgage, I’d also check with the lender before recording anything. Some loan documents contain due-on-sale or transfer restrictions, so you want to understand whether the lender will consent to the transfer or whether there is another approved way to structure it.
I'd also call the insurance carrier. The policy needs to match the ownership and use of the property, and you don't want the deed sitting in an LLC while the insurance is still written as though you personally own and operate everything.
From the tax side, if it's a single-member LLC owned by you and no different tax election is made, the LLC is generally disregarded for federal income-tax purposes. So transferring the rental into your own single-member LLC typically does not, by itself, create a new federal income-tax return or magically create tax savings. The rental activity generally continues to flow onto your return.
The transfer process also doesn’t necessarily mean repeating the full purchase closing, but there can still be attorney fees, deed preparation, recording fees, title work, lender requirements, and possibly state/local transfer issues depending on how it’s structured.
I’d get the attorney, lender, insurance carrier, and CPA aligned before recording the deed.
Feel free to DM me, I’d be happy to send over a few resources that might help with the entity and tax side.
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes
5d
Mohammad, I'd separate the liability question from the tax question here, because forming the LLC and actually getting the property into it are two related but different steps. If the rental is still titled in your personal name, creating the LLC on its own generally doesn't move ownership into the entity, so if you want the LLC to truly own the property you'd need to transfer title properly, and I'd have a Nebraska real estate attorney handle that rather than treating it as a routine administrative change. Because there's already a mortgage, check with the lender before anything gets recorded, since loan documents often contain due on sale or transfer restrictions and you want to know whether the lender will consent or whether there's another approved way to structure it. I'd also call the insurance carrier so the policy matches the actual ownership and use of the property, rather than leaving the deed in an LLC while the coverage is still written as if you own and operate everything personally. On the tax side, a single member LLC owned by you with no different tax election made is generally disregarded for federal income tax purposes, so moving the rental into your own single member LLC typically doesn't by itself create a new federal income tax return or produce tax savings, and the rental activity generally keeps flowing onto your return. The transfer also doesn't necessarily mean repeating a full purchase closing, but there can still be attorney fees, deed preparation, recording fees, title work, lender requirements, and possibly state or local transfer issues depending on how it's structured. I'd get the attorney, lender, insurance carrier, and CPA aligned before the deed gets recorded. How this shakes out depends on your specific facts, so go through it with your own CPA or tax advisor.
Since there’s a mortgage, I’d review the loan terms and speak with the lender before transferring anything. Also coordinate with a real estate attorney/title company and CPA so the deed, insurance, liability protection, and tax treatment are handled correctly.
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