Llc vs Personal cash out refinance

[Georgeos Partheniou]

Hi guys 

New to this forum and have been getting conflicting advise on this matter. 
This is a question on refinancing- 
If I own a property in a Llc company with lots of equity, I refinance, that money is classed as tax free as it’s a loan/debt? Can I personally take that extra finance money tax free into my own name or personal bank account to do with what I please, or does the refinance money have to stay in that Llc company and I cant use it personally.
Many thanks

[Brian Kloft]

First and obviously you need to talk with your tax person about it or potentially lawyer is you think about LLCs the way Jay does. With that said, here are some basics on the way they often work. You need to be keeping good books on your property so that you know where all money has come from and gone. I say this because a lot of people don't keep good books and this can cause lots of problems both with taxes and what Jay is talking about. Typically when you are buying the property you had to start with some money. Unless the LLC already had money from some other venture you did an Owner Contribution to the LLC to give it that money. When your property (LLC) is making money and you want to pull money out of it you do an Owner Draw. So an Owner Contribution is personal money going into the LLC and an Owner Draw is money coming out of the LLC into your personal hands.

Now if your LLC is just you or you and your spouse then they are probably a pass thru entity for tax purposes. So with taxes the contributions and draws don't mean much as it is the net income that will matter.

My guess, and this part I am not as familiar with, is that if you do take out the loan, whether it be in the LLC name or your personal name, you will want to follow some rules to keep safe. Most likely you will want that money to go into your LLC name and then take an Owner Draw to get the money out into your personal name. That way in the books it will show that the loan was to the property even if you had to use your personal name for the bank to give a loan.

Again check with an accountant and lawyer to verify. You don't want to mess with the IRS based on free advise.