Transferring Rental Property to LLC: Everything to Know
Transferring rental property to LLC is one way property owners can protect their assets in case of legal action.3 min read
Updated July 15, 2020:
Transferring rental property to LLC is one way property owners can protect their assets in case of legal action. Even property that is put into trust does not have as much protection from liability as rental property transferred to a limited liability company.
A land trust does provide some protection against frivolous lawsuits because most of the property can be under an anonymous owner. This means when a party tries to sue you, they will not find much property listed under your name. Thus, they might not file a suit against you or include that property value in their suit. In a valid lawsuit, however, the property is seen as an asset and can be sought in a judgment.
To provide additional protection for your property, you can move it to an LLC, an s corporation, or a limited partnership. One of the most popular options, due to its tax accounting and easy maintenance, is transferring it to an LLC.
Once you have transferred the property, the tax bills will no longer be in your name but in the LLC's. You must also change your insurance to make sure it's still valid when you transfer the property to an LLC.
How to Transfer the Title of a Property From a Person to an LLC
It is common for owners of both investment and rental real estate to transfer property titles from their name to that of an LLC to help protect their assets. Transferring the property can also help limit your liability if someone suffers an injury on your property and files a lawsuit. Transferring a property title to an LLC requires eight steps:
- If the property still has a mortgage, you must contact your lender. Even if the title is under the LLC, you will still need to make timely mortgage payments and be responsible for late payments. Some lenders might require you to pay the mortgage in full before transferring the property, while others will allow you to transfer the title as long as you remain fully responsible for the mortgage. You might have to refinance the mortgage and use your established income to guarantee payment. You might also be required to sign a guarantee.
- Complete the formation of your LLC. If you have not yet done so, file your Articles of Organization along with any fees and their forms with your state's corporations division.
- You will need to file for a federal tax ID number and open a business bank account. If your business has more than one owner or has employees, you will need to fill out the appropriate form to obtain an Employer Identification Number (EIN) from the IRS. There is no fee for obtaining an EIN. You will need this number to open business bank accounts, take out loans, file taxes, and process employee payroll.
- You will need to obtain a form for the property's deed. You can secure a deed form from your county recorder's office or online, or you can have a lawyer prepare the deed for you. Deed forms can vary from state to state, so make sure you have the right one for your property's location.
- You will need to fill out the quitclaim or warranty deed form. On the form, you will be listed as the grantor and the LLC will become the grantee. There might be a section in which to list the purchase price or "consideration." If you are not exchanging money for the property, contact the county recorder or look up state laws to find the minimum consideration required.
- Sign the deed to transfer it over to the LLC officially. Check your state law to see if the signing requires witnesses or notarization.
- Record your deed with the proper entities. You will need to have your deed recorded by sending it to the registrar's office to keep on public record.
- Change any lease agreements that might be in effect. Update all leases to reflect the LLC as the landlord now instead of yourself. Make sure rent payments are now made out to the LLC and get deposited in the business bank account.
If you need help transferring rental property to LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.