Transferring House Hack to LLC??

Question

I’m house hacking a legal 2flat. I would like to transfer the building to an LLC. For two reasons; 1. Avoiding liability 2. To remove the rental income generated to me personally and have it towards an LLC. Has anyone done this? Also if there’s any specific advisors I could go to. I’m not sure what type of lawyer to ask or if there’s a specific advisor for this. Suggestions? Also if there’s any specific person or business anyone has in the Chicagoland area for me to get in contact with that would be awesome!

Melanie P. · Answer

An LLC will not serve to accomplish your stated goals. The type of attorney to talk with about an LLC is estate planning or business formation.

As long as you carry adequate insurance, as a landlord this means at least $1-2 million GL or umbrella per occurrence plus defense costs, the LLC's "protection" is never going to come into play. A claimant would have to exhaust the limits of your policy and the value of whatever property the LLC holds before moving on to other assets you own. In real life this is very unlikely. People sue because they want to get paid and insurance facilitates that. They settle within your policy limits so that you will settle and they can get paid. it's an extreme rarity that some lawyer chases you down for your last penny when they could have been paid quickly through settlement.

No LLC will provide any tax advantage. A single member LLC is a "disregarded entity" as far as the IRS is concerned. You'd continue to report your rental income and expenses on Schedule E and have the added expense of renewing the LLC each year.

Stuart Udis · Answer

I can understand from the liability perspective but I am not following the rationale behind the income? You would be operating a single member LLC and presumably opt to treat that entity as a disregarded entity which will be a pass through to your personal return. If you do want to transfer the title, you have to be mindful of your lender and willingess to cooperate, be prepared to pay transfer taxes based on the assessed value and other deed preparation & recording fees.

Assuming liability protection is the primary reason, what events have recently transpired that have you concerned? There are quite a few action items  most real estate investors fail to implement that are far more helpful with respect to asset protection than merely creating an LLC. I've posted about this subject ad nauseam. Check out some of my older posts on this subject. Will provide you a few pointers.

Michael M. · Answer

Could you hold a 2, 3 or 4-plex in an LLC, live in one and still sell the entire building as a personal property sale after 24 months (no cap gains tax)?

Basit Siddiqi · Answer

An LLC is used for business related assets.A house-hack is a partially personal / partially business related assetAn LLC is normally best when personal and business are not 'comingled'best to talk to an attorney to see if you will get the asset protection you are looking for.

Wale Lawal · Answer

@Tony Mendoza

To minimize liability and safeguard assets, real estate investors frequently move assets to LLCs. Create an LLC, transfer ownership from your personal name to the LLC, and speak with a real estate attorney to streamline this procedure. A deed transferring the property's title to the LLC is usually executed in order to do this. Notify your mortgage lender and insurance company of the transfer of ownership to update financing and insurance coverage. The tax ramifications of moving the property to an LLC should be discussed with an accountant or tax counselor. Create the necessary contracts between the LLC and you, the property manager, or work with an outside property management firm. Keep up compliance with all legal and regulatory requirements for LLC ownership, such as upholding state law duties, filing yearly reports, and keeping separate financial records. You may confidently handle the process of transferring your house hacking property to an LLC and optimize protection and advantages by collaborating closely with a real estate attorney, tax adviser, and other experts.Good luck!

Wale Lawal · Answer

Most Welcome!

Keep learning and growing!

Melanie P. · Answer

You cannot do what you're describing regardless of how you title your properties. If 75% of the project is getting reported on your Schedule E you would only be able to exclude 25% of the gains. You could still DEFER the other 75% of gains and your depreciation recapture by using a 1031 exchange. You CAN do both the capital gains exclusion and a 1031 in the same transaction on a single pair of properties.

Anthony Swain · Answer

@Tony Mendoza @Tracy Scott

Hey fellow house hacker here!

I'm glad you brought this up. I feel like this is suchhh a common question for new house hackers, including myself.

From what you mentioned, it sounds like you want to remove liability. After doing a lot of my own research, it seems like there are other ways to safeguard your personal liability. @Melanie P. mentioned umbrella policies, which I have heard many many others mentioned before. Some would argue this offers more protection. Aside from the umbrella coverage, you can do everything in your power to make the property safe. Take care of anything that seemingly could be hazardous. I'm sure you can include specific clauses in your lease to protect from a tenant's own negligence too.

Also, you mentioned you want the income to be separate from you personally. @Stuart Udis explained this perfectly. A single member LLC would be a pass through to your own returns.

You should consider speaking to an accountant or tax advisor to understand any potential consequences of such a move.

I hope this thread helps you on your decision and good luck with your house hack!

Tracy Scott · Answer

Thank you for asking the question @Tony Mendoza. I'm in the same position. My first renter moves in next week, and I was thinking about creating an LLC for the same reasons mentioned by Wale.  Thank you @Wale Lawal for your guidance.

Fulton Abraham Sanchez · Answer

@Tony Mendoza, hi.

1. LLC should be two member to limit liability. Rental income to you or LLC is same nature, passive, and will not changed if moved to LLC.

Transferring House Hack to LLC??

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