All Forum Posts by: Mike S.

Transferring a property to a single member LLC is really easy. You deed the property to the LLC and you enter into the LLC books the property as a contribution. The LLC will inherit the same tax basis and depreciation that you had yourself. You can deed back the property later to yourself without any tax consequence.

Now there are some ancillary issues:

- in some state/counties, the transfer from yourself to the LLC may be subject to a transfer tax and/or a loss of tax cap rate protection. Depending on your jurisdiction, there may be some ways around it with the use of land trust;

- if you use a Quit Claim Deed, you may loose your title warranty. Use instead a Warranty Deed (or Special WD if there is a mortgage). It doesn't cost more.

- if you have a mortgage, the transfer of the title to the LLC may trigger the due on sale clause with some lenders. You can avoid it by using a Land Trust.

First of all, an LLC is not a recognized entity by the IRS. It can be taxed as a C corporation, an S corporation, a Partnership or be disregarded entirely. You will have to make the proper election or be reverted by default to partnership for multi member, or disregarded for single member LLC.

So if you question is, what is the tax advantage of a single member LLC taxed as a disregarded entity, the answer is none as it is disregarded, does not file federal tax return, and will revert back to its sole member like it didn't exist. As explained before, single member LLCs are mainly used for asset protection.

A partnership does not pay taxes, but file an informational 1065 return and issue a K1 to its member that is then also reverting to their tax return. It has also no real tax benefit, except maybe to lower your audit risk on your personal return as you removed your schedule E.

Now there are big tax treatment differences with S corporation and C corporation. Depending on your activity, it may be advantageous to use one of them, but rarely in the case of a real estate buy and hold operation.

as you will need to be able to act in court for civil actions against your tenant, your LLC will need to have legal status in the state where the property is located. So it is often recommended to open it in that state (with some exception in expensive state like CA where you can use other tools like DST)

All states LLC have the same protection for inside liability.

However for outside liability some states are very weak and only a few offer the charging order as sole remedy. Also some differentiate the level of protection for single member versus multi members LLC.

So to keep a good outside liability protection in weak states, a usual setup is to have all these single member LLCs in different states to be owned by a holding LLC in Wyoming where not only the outside liability protection is great but also offers anonymity.

Tax wise it does not create any additional burden as all the single member LLCs would be disregarded by the IRS and would be consolidated on the holding LLC return (if multi member) or its owner (if single member disregarded).

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You can always be sued personally whatever structure you have. It does not mean that the plaintiff will be able to make it stick to you.

For asset protection purpose you have to understand how an LLC works.

You have two types of liability: inside liability and outside liability.

Inside liability is coming from an action that happened inside your LLC that created a tort.

Outside liability is coming from an action that happened outside your LLC (for instance your kid had a car crash and injured someone).

All states will have the same inside liability protection for their LLC. The maximum that you can lose in an inside liability claim is the content of the LLC. It can not propagate to your other assets held outside that LLC.

On the other hand, the outside liability protection varies widely from state to state and most states have very limited protection for single member LLC. So if you have an outside liability claim and you lose, your creditor will be able to get the assets that are in your LLC.

The usual way to get outside liability protection for your local LLC that is in a weak state, is to have this local LLC owned by a Wyoming LLC that has a strong charging order protection (even for single member LLC). You in turn own directly the WY LLC.

The protection of an LLC is not absolute. For instance if you personally acted fraudulently or recklessly, you may be personally responsible. Also if you did not respect the proper use of your LLC (proper separation of funds, proper capitalization, proper documents and using the name of the LLC for all contracts), you may have pierced the company veil and the LLC would be considered your alter ego and not providing any protection anymore.

I believe that an LLC is a must for asset protection purpose. Now as explained before, it has its drawback (more expensive lending, maintenance cost, ...). So you will have to decide if the additional protection that you are gaining is worth the cost for you. Some will be perfectly happy to take the chance and rely only on liability and umbrella insurance. They are making a bet that they won't get involved in a catastrophic lawsuit that will exceed the coverage or be an exclusion of their insurance. Most of them will win that bet. But when your assets are becoming sizeable and you are becoming a target for nuisance/ambulance chaser lawsuit, having a proper structure beforehand may make you look less interesting for the contingency lawyers. I am not a gambler, and for me the additional cost is worth every penny to keep me sound asleep at night.

what are the power vested to you or the manager in your operating agreement? Is there anything limiting the ability of the manager to invest? Is it a single member LLC manager managed or a multi members?

You can do an annual meeting of members and submit the resolution to a vote. But the resolution itself can be as short or as long as you want depending on your goals. 

Resolution of the members of ACME LLC

Whereas the members of ACME LLC are seeking to invest in real estate properties,

Be it further resolved that ACME LLC will buy the following property...

In witness whereof the parties have duly affixed their signature on this xx day of xx

Minutes of the meeting of members of ACME LLC

Pursuant to notice sent on xx, a meeting of the members of ACME LLC was held at xxx on xxx.

The meeting was called to order by the manager of the company.

The manager read the roll of members. The following members were present:xxx

The manager stated that a majority of the total number of members was represented and that the meeting was complete and ready to transact any business before it.

It was moved, seconded and unanimously carried a resolution to buy real estate property xx

There being no further business, the meeting was adjourned.

For a multi member LLC, I would suggest that you consult with a lawyer to make sure that your operating agreement and resolution are clear about how the property will be managed and later disposed of. Also if there is a need for more capital for unexpected expenses how will it be done if some member can't afford it. If your property need financing, the lender will probably require personal guarantee. Should all the members be included or only some... What will happen if one member wants to leave the LLC, how will that impact your loan?

My personal point of view is that you should give them a new check for the same amount, minus your stop payment fee. Do not attempt to hold any more charges as you already agreed in your return deposit letter that there wouldn't be any. Also when you give them the new check, have them sign a receipt that specify that this check is a replacement for the prior one that they told you was destroyed by accident and that the prior check is canceled.

That is not very difficult. You need to have a resolution to change your article or organization and operating agreement, pay the fee to the new state and notify the old state of the transfer/dissolution. Just check before hand that the name is available in the new state. If you do that mid year, you will still probably have to report taxes in both states (in this case FL does not have tax reporting requirement for disregarded single member LLC, I don't know about NC)

However, why would you want to do that instead of creating a new fresh LLC in the new state? You would cut the tie with past liability. The cost is the same. The only burden will be to reopen new bank accounts.

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.

Originally posted by @Natalie Kolodij:

You're mixing up schedules with tax returns.

Yes, I did not use the proper terminology.

What I wanted to convey, is the confusion about the itemized deduction on schedule A (reported on line 10/11) that was the usual home mortgage deduction and the rental property investment expenses that would be on schedule E.