Hi, I need tax advise related to rental property. I have a rental property, I want to add it to LLC I plan to setup, need help with all steps that I need.

[tagteam · Accepted solution]

You are essentially asking a legal question and should consult with local legal counsel.

See https://www.avvo.com/business-lawyer.html

In a nutshell, you would have to set up your LLC (register with the state), then draft and record a quitclaim deed from yourself to the LLC. This entire procedure can become more complex if the property has a lien, most likely in the form of a mortgage.

[Critter-3 · Accepted solution]

Unless the LLC incorporates  a single member LLC is reported on the income tax return on the Sch E like you have in the past.   If the sole reason for setting up the LLC is for protection from law suits then a better solution is to get a good liability insurance policy.  

[bolledula]

Thank you. 

I will check to see if I can engage someone from avvo to get bit more insight into the LLC setup.

My aim is to protect myself from any liabilities in future.

[bolledula]

Thanks for your response. 

I do have landlord policy, but I read that putting in LLC may also needed. 

Looks like it can be 1 or the other. I am trying to find if there are any tax benefits to it by moving to an LLC, as I plan to refinance, and have an opportunity to put it in LLC.

[Critter-3]

On the income tax return an UN-incorporated single member LLC is treated exactly the same as a NON-LLC rental  since it is still entered on the same Sch E. 

What you do insurance wise has no bearing on an income tax return.  

[Carl]

Why do you want to do this? What is your specific and explicit reason?

In my opinion (and we all know what opinions are like) putting a rental property into a single member LLC really serves no purpose. For starters, a single member LLC reports income/expenses on SCH C as a part of your personal 1040 tax return. if the only thing the LLC owns in the rental property, then absolutely nothing concerning the rental property gets reported on SCH C. The SCH C is for "earned" income. Rental property produces passive income. So rental property still gets reported on SCH E and you'll have nothing to report on SCH C at all.

If the mortgage is in your name, you need the lender's permission to change that. No mortgage holder I'm aware of will give that permission either. There are quite a few more legal issues to deal with also, that have absolutely nothing to do with taxes. But do understand that since the IRS considers a single member LLC to be a disregarded entity, it changes nothing about how you report your rental income/expenses on your tax return.

[tagteam]

We have been through this before.

1) An LLC with a single member, and no election to be treated as a corporation, is a disregarded entity for federal income tax purposes. However, it is definitely treated as an entity separate from its sole member for the purposes of state law.

2) Transferring title to real estate from an individual owner to an LLC does not require the permission of a lienholder, although the mortgagee could call the loan if there is a due on sale clause (which there almost surely is). The individual owner would remain liable on the original mortgage, regardless, and the lender would most likely not allow the LLC to "assume" the mortgage without a personal guarantee.

[Mike9241]

My aim is to protect myself from any liabilities in future.  That's a question for a lawyer because state laws and case findings differ from state to state.  in other words there an LLC may offer no protection from certain liabilities. since many states have substantial annual fees for an LLC, liability insurance could be a better option.

[Carl]

@Mike9241 I was told the same about 25 years ago. I found it significantly cheaper and much less of a hassle to just increase the liability side of my rental dwelling insurance policy from $300K to $1M. Cost me less than $100 a year back then. Now, it's just under $200 a year and still worth it.

[tagteam]

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@Mike9241 wrote:

My aim is to protect myself from any liabilities in future.  That's a question for a lawyer because state laws and case findings differ from state to state. 

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The primary rationale for maintaining an adequate amount of liability insurance, regardless.

[tagteam]

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@Carl wrote:

@Mike9241 I was told the same about 25 years ago.

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It made a lot more sense 25 years ago (if you were living in Florida) since Florida actually imposed a corporate income tax on LLCs at that time.

[Critter-3]

Funny thing ... in FL it costs you $139 per year to have an LLC registered so save that fee and up your liability insurance instead.