Key Takeaways

  • You must use a properly executed deed to transfer real estate between an LLC and a person.
  • Notify lenders before transferring mortgaged property to avoid triggering loan acceleration clauses.
  • Transferring from an LLC to an individual may involve tax implications depending on how the LLC is taxed.
  • State-specific rules apply, especially in places like California, which may require additional disclosures or forms.
  • Updating records, like the operating agreement and county title records, is essential for both legal and tax compliance.
  • Consulting a real estate attorney or tax advisor is highly recommended to avoid costly mistakes.

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

  1. 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.
  2. 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.
  3. Have a notary present when you sign the deed.
  4. Have the property transfer documented in your LLC operating agreement.

Transferring Property from an LLC to a Person

If you're asking, "How do I transfer title of a property from an LLC to a person?", the process is similar to transferring it into the LLC but with unique legal and tax considerations. The key document involved is a deed—typically a grant deed or quitclaim deed—that formally releases the LLC’s claim and assigns it to the individual.

Here are the steps involved:

  1. Review the LLC Operating Agreement
    Check if the agreement allows for property transfers and whether member approval is required.
  2. Select the Correct Type of Deed
    • Use a grant deed if you want to affirm that the title is clear.
    • Use a quitclaim deed if no warranties are being provided about the title.
  3. Prepare the Deed
    List the LLC as the grantor and the individual as the grantee. Make sure the legal property description matches county records exactly.
  4. Sign in Front of a Notary
    Most states require notarization of the deed for it to be valid.
  5. File with the County Recorder
    Submit the executed deed to the county recorder’s office where the property is located.
  6. Update Records
    • Amend the LLC’s internal records and operating agreement.
    • Notify your insurance company, utility providers, and possibly the mortgage lender if applicable.

Important Note: If there's an outstanding mortgage, the lender may need to approve the transfer. Without this, the lender may call the full loan amount due based on a “due-on-sale” clause.

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.

Selling Property from LLC to Individual

When an LLC sells property to an individual, whether that person is a member or not, it is considered a formal sale, which should be well-documented to avoid tax or legal issues.

Key steps include:

  • Appraise the Property: Determine fair market value using a professional appraisal or market comps.
  • Create a Purchase Agreement: Even if you're selling to yourself (as a member), having a written contract is critical for legal clarity.
  • Account for Taxes: If the LLC is taxed as a corporation, the sale could trigger capital gains taxes. For pass-through entities, the gain passes to members.
  • Issue a Proper Deed: Typically a grant deed or quitclaim deed, signed and notarized.
  • Record the Deed: Submit to the local county recorder.
  • Document with the IRS: Depending on your LLC’s tax election, this could require special reporting, especially for appreciated property.

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.

California-Specific Title Transfer Rules

California has additional requirements when transferring property titles, especially when the transfer is between related parties or from an LLC to an individual.

  • Preliminary Change of Ownership Report (PCOR): Required in most counties when recording a deed. Failure to file may delay the process or incur penalties.
  • Transfer Tax Considerations: Some transfers, such as from a single-member LLC to the owner, may be exempt—but this depends on local tax rules.
  • Reassessment Rules: Property taxes may be reassessed upon transfer, potentially increasing your tax liability.
  • Form BOE-502-A (Change in Ownership Statement): May be required to determine if a reassessment applies.
  • Gift Transfers: If the transfer is not a sale but a gift, you may need to file a gift tax return, especially if the property's value exceeds annual IRS gift exclusion limits.

Always verify with the county recorder’s office and consider working with a real estate attorney, especially in California where regulations are more nuanced.

Frequently Asked Questions

  1. How do I transfer title of a property from an LLC to a person?
    You need to execute a deed (typically a grant or quitclaim deed), have it notarized, and file it with the county recorder’s office.
  2. Can I transfer a mortgaged property from my LLC to myself personally?
    Yes, but you must obtain your lender’s permission first to avoid triggering a due-on-sale clause.
  3. Do I pay taxes when transferring property from an LLC to an individual?
    It depends. If the transfer is considered a sale, capital gains taxes may apply. If it's a distribution, the tax implications depend on the LLC’s structure.
  4. What deed should I use to transfer property from an LLC to a person?
    Either a quitclaim deed (no title guarantees) or a grant deed (some guarantees). Consult with a real estate attorney to choose the right one.
  5. Is reassessment of property taxes triggered in California when transferring title out of an LLC?
    Often, yes. However, some exclusions apply—such as transfers between a single-member LLC and its owner. Check with your county assessor.

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