Investor · South Jersey · Member since 2020 · 11 posts · 7 votes
Hi All,
I have a rental property that I've owned for ~5 years. I've been waiting to deed the property to my llc until I refinanced to avoid trying to get a loan in an llc. Rates etc. Just refinanced and cashed out and spoke to an attorney about doing the deed transfer. He informed me of the NJ transfer tax. Of coarse NJ taxes everything you do. It will be ~ $3,000 for the transfer tax. He actually recommended not doing it because of the cost. Instead he said make sure your insurance has coverage for slips and falls etc.
Does anyone have experience in NJ with this situation? What have you done? Beef up the insurance, pay the transfer tax and know the liability is no longer on you, or maybe both.
Hi Anothony, I am not a lawyer, so I'll leave the LLC and liability stuff to your attorney. His advice sounds fine.
On taxes, first, federally, moving your own rental into a single-member LLC does nothing. The IRS ignores the LLC, so no sale, no gain, same basis and depreciation, and it won't mess up a future 1031. The only real cost is the NJ fee. Worth asking your attorney what he based the fee on. NJ usually charges it on the mortgage balance the LLC takes over, and since you just cashed out, that balance is near its highest, which may be why it's around $3k. If that's the base, there's not much to do about it now, but it's worth knowing.
So it's a one-time ~$3k against having the property out of your name for good. Your call, but the federal side at least costs you nothing.
Quick take from the insurance side: LLC or not, making sure you have the right landlord coverage with enough liability limits should be your priority either way.
Anthony, with 12 doors and a property you've owned for about five years, I think this is worth looking at from more than just the $3,000 transfer tax.
I'd first make sure the lender is comfortable with the deed transfer after the refinance and have the attorney confirm exactly what liability protection the LLC would provide in your situation. I'd also have your insurance agent quote the property with the LLC as the owner.
From the tax side, I'd want to compare the current ownership structure with the proposed LLC structure and look at the transfer tax, basis, future sale, and any other state or federal tax consequences before making the move.
I wouldn't assume an LLC is automatically better, but I also wouldn't make the decision based solely on the transfer-tax cost. With 12 doors, the liability and administrative considerations can become more meaningful as the portfolio grows.
Have you already had your CPA review the tax side of the transfer, or has the discussion so far mainly been with your attorney?