How to Transfer Property Title to LLC
To know how to transfer property title to LLC, there are several steps to complete. You can move your property to an LLC because to get an asset protection.4 min read
2. Transferring Other Property
3. Selling Property to an LLC
4. Factors to Consider
To discover how to transfer property title to LLC, there are several steps to complete. It's a good idea to move your property to the LLC, or another separate legal entity, because it helps provide asset protection.
Transferring Real Property
- You need permission from your lender if there is a mortgage on the property. Many mortgage loans include a clause that gives the lender a right to demand payment in full in the event the property is transferred or sold.
- Request the right deed form and fill it out. You must prepare a new deed in order to transfer the property from you to your LLC. Check your original deed and ensure your name is listed exactly as it's written on that one, otherwise someone could dispute the transfer down the line.
- Have a notary present when you sign the deed.
- Have the property transfer documented in your LLC operating agreement.
Transferring Other Property
Start by determining the property's market value. Any property you transfer is treated as a capital contribution. The contribution amount is equivalent to the property's market value that is being transferred out of your name and into the LLC. This is the case even if you are the only member of your LLC, as the business is treated as a separate and distinct entity apart from you and your own finances. If you are the only member, there is no need to be exact about this property's value.
You should consult a tax advisor when considering a property transfer. Most property transfers to an LLC are not taxed on the transaction. You will need to adjust your LLC's records to reflect the change and be sure to execute any titles or other documents showing ownership. If you started your business as a sole proprietorship and deducted the property on your own taxes, you will need to calculate what the carryover basis is for LLC property. This means if you purchased a laptop for $3,000 and deducted $1,000 on your personal taxes, the carryover value is $2,000, no matter what the fair market value is at the time of the transfer.
Next, you will need to adjust any title documents as necessary. For example, if you transfer a car over, you will need to sign the title over to the LLC and then prepare a new title under the LLC's name. If you are still making payments on the vehicle, you will need to get permission from the lender. Like real property mortgage loans, other types of loans may have a clause that allows lenders to demand payment in full in the event the property is sold or transferred. Be sure to have any warranties transferred as well rather than keep them in your personal name.
You may need to have these documents notarized as well — look for a notary seal space. If there is one, you'll need to wait until you are with a notary to sign the documents. Make sure the asset transfer is recorded in your operating agreement.
Selling Property to an LLC
- Start by assessing the property's fair market value.
- Put everything in writing. This applies even if you are a single-member LLC, as it's a separate legal entity.
- Document the reasons why the property is being sold.
- Speak with a tax advisor about potential tax consequences of the sale.
- The sales need to be recorded as capital contributions.
Factors to Consider
As mentioned previously, your lender's position on the transfer may impact the transaction. Lenders have the option whether or not to act under this clause, but many times they won't. It's still imperative to put them on notice and find out their position on the transfer. If there is an acceleration clause, it will force accelerated payment of the mortgage balance. If you transfer title to your LLC, most banks consider this an ownership transfer.
If the LLC opts to sell the property down the line, the gains from the sale will be taxed. And, because the LLC doesn't pay taxes itself, that means the members will pay. If you are transferring real property to your LLC, it could result in a reassessment. If the house is valued higher during the reassessment, there could be an increase in property taxes. If the property transferred is used to generate income, you will wind up paying tax on that income.
LLCs can depreciate assets it owns, including property transfers, which reduces income tax. The IRS will allow you to depreciate that property over the lifetime of the asset.
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