Real Estate Into LLC

Real Estate Into LLC

I want to transfer several properties into LLCs to protect my personal assets. Is this simple to do? Are there any issues?


There are a raft of issues that come up. You need to retain real estate counsel to advise you on all the real estate issues, but consideration must be given to the any commercial realty tax which some states impose, to the realty transfer fees if applicable (e.g. if the property has a mortgage it may trigger the tax, local law varies), assignment of leases, title insurance, lender approval, updating property and casualty coverage, etc. Income tax costs will often not be triggered as a result of the tax free formation of a partnership under Internal Revenue Code Section 721 if the LLC transferee is a partnership. If its a one member LLC there should not be an income tax cost on the formation (but there are income tax planning considerations to address with your CPA). However, even that is not without pitfalls in that if there is debt in excess of basis gain can be triggered. It's best to have the accountant for the entity involved to review those issues. As far as capital gains, there should no be an impact. Generally there is a carry over of basis (but there are a host of complications with the 704(c) and other partnership tax rules if the LLC is a partnership). It might be simple in some instances, but in many instances there are a host of issues. The only safe way to proceed is to have the pros guide you. It will cost a bit extra money, but that is often modest compared to the cost of the problems if you don't address them.

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