Quit Claim Deed to LLC Tax/Legal Question
Investor · MD · Member since 2024 · 25 posts · 7 votes
Quit Claim Deed to LLC Tax/Legal Question
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Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
2yYou have three separate categories here: lending, legal, and tax.
For the lending side, the lender has a clause in the loan documents in 99.9% of loans that allows them to "call" the loan if their is a change in ownership of the property. They generally do not do this because either they are not aware of the changes or the loan is seasoned and performing so they are deliberately turning a blind eye. In the handful of cases that I'm aware of, the lenders found out when changes were made to the insurance policies for the properties (the lenders will get notifications by letter of any changes to insurance policies where they have an interest). I know of at least two occurrences where the investors had to move the properties back to personal ownership under the lender's threat of acceleration of the loan.
For the legal and tax side, I'm neither an attorney nor tax professional. My very limited understanding is that the mortgage being in your individual name and you operating the property through a single-member LLC makes piercing the corporate veil fairly easy and that insurance coverage is typically a better protection plan. I could be wrong here, though.
11 Replies
- 2yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
You may have to pay off the whole mortgage if the due on sale clause is exercised.
No need to move in an LLC if it has a big mortgage and insurance.
An LLC can also give you a false sense of security that can easily be pierced with a decent attorney.
Just have correct insurance and properly maintain your property.
- Investor · MD · Member since 2024 · 25 posts · 7 votes2y
Quote from @John Underwood:
You may have to pay off the whole mortgage if the due on sale clause is exercised.
No need to move in an LLC if it has a big mortgage and insurance.
An LLC can also give you a false sense of security that can easily be pierced with a decent attorney.
Just have correct insurance and properly maintain your property.
Thanks for your insight!! I appreciate it!
- 2yJoshua ThompsonBusiness MemberAccountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
John did a great job answering this! The due on sale clause will be the biggest worry, even though it's uncommon for banks to enforce it, they have the opportunity to at any time. Typically they give you 30ish days to get the funds and in the time you might be able to find a new lender but every bank is different.
Yes you'll still be able to claim the tax benefits as long as you qualify even if the property is in your LLC. Know your tax situation first though because real estate may or may not benefit your tax situation!
Thompson Tax Group LLC550 Reviews - Investor · MD · Member since 2024 · 25 posts · 7 votes2yThanks, Joshua!! Still trying to navigate REI. Most people say to start an LLC for liability purposes but some say you should use it to gain tax benefits afforded to businesses and not individuals. And, of course, you have those who are against st it. So many opinions out there. Just trying to educate myself so that I make the best decisions for me. Thanks again for replying!!
Quote from @Joshua Thompson:
John did a great job answering this! The due on sale clause will be the biggest worry, even though it's uncommon for banks to enforce it, they have the opportunity to at any time. Typically they give you 30ish days to get the funds and in the time you might be able to find a new lender but every bank is different.
Yes you'll still be able to claim the tax benefits as long as you qualify even if the property is in your LLC. Know your tax situation first though because real estate may or may not benefit your tax situation!
- 2yJoshua ThompsonBusiness MemberAccountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
Quote from @Danielle DeCormis:
Thanks, Joshua!! Still trying to navigate REI. Most people say to start an LLC for liability purposes but some say you should use it to gain tax benefits afforded to businesses and not individuals. And, of course, you have those who are against st it. So many opinions out there. Just trying to educate myself so that I make the best decisions for me. Thanks again for replying!!Quote from @Joshua Thompson:
John did a great job answering this! The due on sale clause will be the biggest worry, even though it's uncommon for banks to enforce it, they have the opportunity to at any time. Typically they give you 30ish days to get the funds and in the time you might be able to find a new lender but every bank is different.
Yes you'll still be able to claim the tax benefits as long as you qualify even if the property is in your LLC. Know your tax situation first though because real estate may or may not benefit your tax situation!
Lol yes, so many different opinions right! I don't want to give my opinion to you here based on my experience with clients but I would definitely ask your tax professional on their opinion because you might be surprised by their answer. To clear up things though if you have an LLC just for rental properties you won't get any tax benefits for having an LLC other than an additional expense.
Thompson Tax Group LLC550 Reviews - Investor · MD · Member since 2024 · 25 posts · 7 votes2yThat’s what I’m looking for. Thanks!! So, it really is all about personal liability then?
Quote from @Joshua Thompson:
Quote from @Danielle DeCormis:
Thanks, Joshua!! Still trying to navigate REI. Most people say to start an LLC for liability purposes but some say you should use it to gain tax benefits afforded to businesses and not individuals. And, of course, you have those who are against st it. So many opinions out there. Just trying to educate myself so that I make the best decisions for me. Thanks again for replying!!Quote from @Joshua Thompson:
John did a great job answering this! The due on sale clause will be the biggest worry, even though it's uncommon for banks to enforce it, they have the opportunity to at any time. Typically they give you 30ish days to get the funds and in the time you might be able to find a new lender but every bank is different.
Yes you'll still be able to claim the tax benefits as long as you qualify even if the property is in your LLC. Know your tax situation first though because real estate may or may not benefit your tax situation!
Lol yes, so many different opinions right! I don't want to give my opinion to you here based on my experience with clients but I would definitely ask your tax professional on their opinion because you might be surprised by their answer. To clear up things though if you have an LLC just for rental properties you won't get any tax benefits for having an LLC other than an additional expense.
- 2yJoshua ThompsonBusiness MemberAccountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
For the most part yes and depending on what you have going on in life an LLC might be overkill and why I think John gave a terrific answer
Thompson Tax Group LLC550 Reviews - Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes2y
You have three separate categories here: lending, legal, and tax.
For the lending side, the lender has a clause in the loan documents in 99.9% of loans that allows them to "call" the loan if their is a change in ownership of the property. They generally do not do this because either they are not aware of the changes or the loan is seasoned and performing so they are deliberately turning a blind eye. In the handful of cases that I'm aware of, the lenders found out when changes were made to the insurance policies for the properties (the lenders will get notifications by letter of any changes to insurance policies where they have an interest). I know of at least two occurrences where the investors had to move the properties back to personal ownership under the lender's threat of acceleration of the loan.
For the legal and tax side, I'm neither an attorney nor tax professional. My very limited understanding is that the mortgage being in your individual name and you operating the property through a single-member LLC makes piercing the corporate veil fairly easy and that insurance coverage is typically a better protection plan. I could be wrong here, though.
- Investor · MD · Member since 2024 · 25 posts · 7 votes2yI’ve watched a few videos on this and it sounds like, if done right by an attorney, you can still keep anonymity.
Quote from @Patrick Roberts:
You have three separate categories here: lending, legal, and tax.
For the lending side, the lender has a clause in the loan documents in 99.9% of loans that allows them to "call" the loan if their is a change in ownership of the property. They generally do not do this because either they are not aware of the changes or the loan is seasoned and performing so they are deliberately turning a blind eye. In the handful of cases that I'm aware of, the lenders found out when changes were made to the insurance policies for the properties (the lenders will get notifications by letter of any changes to insurance policies where they have an interest). I know of at least two occurrences where the investors had to move the properties back to personal ownership under the lender's threat of acceleration of the loan.
For the legal and tax side, I'm neither an attorney nor tax professional. My very limited understanding is that the mortgage being in your individual name and you operating the property through a single-member LLC makes piercing the corporate veil fairly easy and that insurance coverage is typically a better protection plan. I could be wrong here, though.
Thanks for your insight!! Very helpful and all responses have triggered additional questions for my tax guy. Looks like I need to find an attorney too. Lol - Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Quote from @Danielle DeCormis:
I’ve watched a few videos on this and it sounds like, if done right by an attorney, you can still keep anonymity.Quote from @Patrick Roberts:
You have three separate categories here: lending, legal, and tax.
For the lending side, the lender has a clause in the loan documents in 99.9% of loans that allows them to "call" the loan if their is a change in ownership of the property. They generally do not do this because either they are not aware of the changes or the loan is seasoned and performing so they are deliberately turning a blind eye. In the handful of cases that I'm aware of, the lenders found out when changes were made to the insurance policies for the properties (the lenders will get notifications by letter of any changes to insurance policies where they have an interest). I know of at least two occurrences where the investors had to move the properties back to personal ownership under the lender's threat of acceleration of the loan.
For the legal and tax side, I'm neither an attorney nor tax professional. My very limited understanding is that the mortgage being in your individual name and you operating the property through a single-member LLC makes piercing the corporate veil fairly easy and that insurance coverage is typically a better protection plan. I could be wrong here, though.
Thanks for your insight!! Very helpful and all responses have triggered additional questions for my tax guy. Looks like I need to find an attorney too. LolThat is correct! All great answers above, just wanted to add that your tax guy should be able to help here I'm not so sure going to an expensive real estate attorney for an LLC alone is a good use of funds in many cases its overkill.
- 2yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
If you quit claim the property to your LLC, you are still responsible for the mortgage since it’s under your name, not the LLC. This could trigger the due-on-sale clause, allowing the lender to call the loan, though some lenders might not act on it.
You can still claim tax benefits like depreciation since a single-member LLC is treated as if you personally own the property for tax purposes. It's smart to confirm with your lender and tax advisor before making the transfer.
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