Can't transfer title to LLC. Can I still use for tax benefits?

Question

My lender wont let me transfer title to LLC (due-on-sale clause). Can I still route the rent income to LLC registered in my name even though the property does not belong to llc?

David Kramer · Answer

I do not have a whole lot of experience on the LLC front, but from what I understand the main benefit of using an LLC is for asset protection. It adds an extra layer between your rental property and your personal assets in the case of a lawsuit. If the LLC is a single-member LLC, I do not believe there would be any tax benefits to even routing your income through it as single-member LLCs are treated as "pass through" assets and the income is taxed on the same level as your other personal income.

Again, this is just from a cursory understanding, there may be some benefits that I am not aware of.

Natalie Kolodij · Answer

This isn't correct at all.

If the LLC doesn't own the property it shouldn't be reporting the income/expenses for it.

Account Closed · Answer

Yes you can still use it for tax purposes, its a little bit of a gray area, but not really.  What the IRS wants is honest numbers/reporting, how many properties under this LLC do you have

Natalie Kolodij · Answer

LLC offers you 0 benefits tax wise, including the 199A.

It's an asset protection tool.

You will qualify for the same deductions with or without it.

Most people don't tell the lender they are transferring title to the LLC. Because the lender doesn't let you.

The other option is commercial financing to have it in the LLC.

The LLC currently has no purpose.

Ansari A. · Answer

Thanks for your replies.

its not very clear to me yet, but reading some of the articles online, it looks like 20% deduction is applicable for any income from LLC?

some  articles:

https://www.marketwatch.com/story/the-new-tax-law-...

https://www.nolo.com/legal-encyclopedia/how-the-re...

Scott Smith · Answer

Some investors will use the land trust to work around the due on sale clause. Arguable the most important feature of the LLC is separating liability from your investment/asset and your personal assets. If you already have the LLC I would recommend getting the property protected under it, then you wont hit the "gray zone" of passing funds through it.

There are two types of transfers that can potentially raise an alarm about the due on sale clause: (1) the transfer to an LLC and (2) the transfer to a trust. A transfer to an LLC will trigger the clause and should therefore be avoided even though banks are hesitant to ever foreclose as long as the note is being paid. Even with the note being paid, the banks will still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.

While a transfer to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.

This article can explain the general process of taking a property into your own name and transferring it into the Land Trust before assigning it to the LLC. The added benefit of this process is that you can also have your attorney sign the public records as "Nominee Trustee" before assigning yourself as the "Trustee" once the Trust has been established. It means your name does not appear on public record for that property. You will still appear on most LLCs without additional steps being taken, but you can make the land trust appear anonymous with this strategy while getting access to the funding you are looking for.

This isn't legal advice, just my opinion as a real estate investor. If you have more questions about this, feel free to reach out to me.

Ashish Acharya · Answer

Talk to the attorney, but if LLC doesn't own the house, there is no point in routing money via LLC.

There are no tax savings with LLC in this case. However, your LLC is not doing its intended liability protection job when it doesn't own the house.

Can't transfer title to LLC. Can I still use for tax benefits?

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