Posted by rfc on November 04, 2003 at 10:04:18:
I don’t know the answer to this question.
I did ask my lender if I could hold the property in my LLC name, of which I was told “no.” There was a field in the application with referenc to this.
I was under the impression that quit claim changed the legal owner, but it did not trigger DOS clause.
Book-keeping? - Posted by rfc
Posted by rfc on November 04, 2003 at 09:23:49:
I am in the process of purchasing a rental property that I intend to hold. The mortgage will be in my name. I intend to quit claim the property to an LLC I have established.
My question has to do with book-keeping. Although I quit claim the property to the LLC, the mortgage is still in my name. Correct? Do I make PITI payments from the LLC checkbook? Expensing the ITI portion to offset rental income? … or do I pass the rental income onto the individual, and expense the ITI in those books?
What about depreciation? Which set of books is this handled in?
I have an appointment with my CPA next week to review this … I’m simply looking for a bit of education prior to my meeting. What other type of book-keeping questions should I be asking?
Thanks in advance to those who reply to this post.
RFC
Re: Book-keeping? - Posted by phil fernandez
Posted by phil fernandez on November 04, 2003 at 09:31:08:
After you transfer the rental into your LLC, the LLC will be the owner of the property. With any LLC you will want a seperate bank account for it. Since the LLC now owns the property you would put your rental income in the LLC account and you would pay your bills from this same LLC account.
For tax purposes the IRS does not recognize your LLC. All income and expenses that your LLC produces will flow to your Schedule E of your individual tax returns.
Re: Book-keeping? - Posted by rfc
Posted by rfc on November 04, 2003 at 10:06:41:
Phil,
Can you answer the question that Brandon poses below? By transferring the property to LLC, is this considered a “sale”?
Re: Book-keeping? - Posted by Brandon
Posted by Brandon on November 04, 2003 at 09:50:04:
If you quit-claim the property, which makes the LLC the legal owner, wouldn’t this trigger a “due-on-sale” clause with the mortgage holder?
Re: Book-keeping? - Posted by Antoine (GA)
Posted by Antoine (GA) on November 04, 2003 at 12:16:10:
The lender may exercise the clause, but most likely if they are receiving the payments on time its not an issue. Placing the property in a trust will help get around the clause.
Re: Book-keeping? - Posted by phil fernandez
Posted by phil fernandez on November 04, 2003 at 14:24:31:
Quit claiming the property from your name into an LLC would be a change of ownership so sure that would be a sale. Would it trigger the due on sale clause. It might be a violation of the mortgage, but if the payments to the bank are current the bank would be more concerned that they are getting their monthly payments. Why would a bank want to foreclose on a perfectly current loan that is generating them monthly cashflow. The bank would have to be pretty stupid to enforce the due on sale clause in this instance. Remember banks want to collect payments. They don’t want to end up owning real estate.
In my case the bank is aware that I have transfered property from my name to the LLC and had no problems with it. I have also numerous times bought property in an LLC right from the get go and no problem with the bank. Of course I still have to sign personally for the mortgage.
I’m not a lawyer, but from my experience the due on sale clause is a highly overrated way that a bank would go after you if your payments are current.
Re: Book-keeping? - Posted by rfc
Posted by rfc on November 04, 2003 at 10:12:05:
I just looked at archives on quit claim into LLC. I found one that said that the “due-on-sale” clause would not be exercised, provided the LLC entity was owned entirely by the same people on the mortgage. In my case, this would apply.
Does anyone know differently?