Transferring Property from my LLC to a S Corp?

[Brie Schmidt]

My husband and I jointly own 3 buildings with residential financing in our personal names. We also own 15 buildings (50/50) in our LLC.

The problem we are running into is that our investment properties with residential financing are sitting at about a 50% LTV, and we can't do a cash out refi because fannie/freddie recognizes the LLC properties so we can't have more than 10 or do a cash out refi once we get 5.

If we had the LLC properties in a S Corp then fannie/freddie wouldn't count them. So we are considering moving them all over to one. I read up about S Corps and don't see that much of a difference. What am I missing?

[Janet R.]

@Brie Schmidt On the surface they are similar in many ways but there are restrictions in connection with S Corps and they also generally require more administration, (annual minutes on file etc.). I would also evaluate the tax implications you might have over each entity structure as well. Your attorney or CPA should be able to guide you best since they would be familiar with your current business structure. This is my 2 cents on LLC (multi-member) vs. S Corp as entities, however not specific to any one individual or business, just in their generic form...

• Both generally protect members and shareholders from personal liability for the debts and obligations of a business. However a single member LLC may not protect the owner from creditors.
• For tax purposes an LLC can file as an S Corp (file S election w/IRS first)
• No upper limits on the number of LLC members, S Corps up to 100
• No restrictions on LLC ownership interests (flexible), an S Corp can have only 1 class of stock but can have differences in voting rights
• Special allocations in income, gain, or loss in an LLC is permitted but not in an S Corp they allow pro rata allocations because of the stock
• In regards to distribution and contribution of property (not cash) an LLC may have tax advantages over the S Corp. The LLC usually doesn't recognize a gain or loss until the member disposes of the distributed property. With an S Corp, distributions of appreciated property are treated as a sale by the corp causing pro rata recognition at the shareholder level.
• It's easier to pass through tax losses to LLC members than to S Corp shareholders because of favorable rules relating to the tax bases of LLC ownership interests.

This isn't an all-inclusive list but wanted to show you some of the differences. Hope this helps :-)