Originally posted by @Joe Splitrock:
Generally speaking an LLC has nothing to do with taxes. It is a disregarded entity which means for tax purposes it is the same as the owner. That assumes single owner or married couple.
You don't really need to have the LLC buy the asset. You have the LLC hold the asset and pay the loan. Once it is paid off, it is owned by the LLC. Understand that an increase in LLC value is just an increase in owners equity. When you transfer a property to an LLC, you are transferring your equity into the LLC. Let's say the down payment was $20K. You as an individual have now transferred $20K value into an LLC. If you are the single member, you own that $20K value. As you pay down the loan, your owners equity in the LLC increases.
You can buy a property in your personal name, using conventional financing and transfer the property into an LLC. Several years ago this was not allowed, but now underwriting rules have changed. They do have a couple caveats, such as the majority owner of the LLC needs to be the same as the person holding the loan. The transfer involves only ownership of the property. The loan will stay in your personal name. You collect rents through the LLC and pay your personal mortgage from the LLC. It has no effect on taxes, because you are considered the same for tax purposes.
This doesn't necessarily stop someone from suing you personally. They could try to argue in court that you are inseparable from the LLC and that the LLC is only a shell. This is why having an LLC is not enough. You also need to be careful to run the LLC as a separate business. That means business accounts and no use of personal credit cards in the business. If you do use personal credit cards, submit reimbursement requests in writing to the business. The business needs operating rules, regular meetings and policies. If members don't follow policies, they can be held liable separately from the LLC. If members break the law, they can be held liable separately from the LLC.
Sorry that is a very condensed explanation. It can be done, but starting out it may not be worth all the extra effort.
Thank you for the detailed response! In my case my LLC is owned by two individuals with a 50/50 split, being myself and a friend. Does this change things since we are not related nor married? It definitely makes sense that using a business bank account/card for everything would be important.
One other follow-up question. If my friend and I want to keep any of the income we make from rents, sales, etc. from the LLC is that money taxed since we both own it together and the LLC is separate from us? Thanks for your time and your explanations.
