Starting a New LLC and Tax Implications

[Chris Wunder]

I currently own a rental property in the Kansas City metro area and am in the process of transferring the deed to an LLC I have created. I am not sure how this will directly impact my personal taxes but would love to learn more. I will hold the note in my name, but the title and deed would transfer to the LLC.

When completing my taxes does this operate like an S Corp or will this LLC be the one to claim he deprecation, expenses and potential cash flow? (Property has a morgage of $3200 and we have a lease purchase agreement in place on a two year lease at $3000 per month and collected a $25k non-refundable down payment if they exercise the option to purchase at the end of the 24 months)

[Pete M.]

@Chris Wunder Caveat: I'm not a CPA by profession, this is best discussed with your CPA.  Traditional LLCs are treated as disregarded entities, meaning the taxes just pass through to your personal income via a K-1.  LLCs are primarily for legal protections (if done properly), not for tax purposes.  S and C Corps are different.

Also keep in mind that if you're using traditional conventional financing with the note in your name, and then you transfer the title to an LLC, you may be at risk of having your note called due because of the Due-On-Sale/Alienation+Acceleration clauses. Not to say it will happen (many do exactly what you're planning without issue), but could.  I believe if the note was underwritten by Fannie Mae, they do allow you to transfer title to an LLC without issue, so long as the LLC is owned by same person who's on the note.  But again, you're best off asking a savvy professional lender, which I am not. :)