transferring a house to an LLC, when (a) you intend to live there as you personal residence, and (b) the LLC has a fundamentally different ownership structure than the residence, IS A BIG NO NO. Fugettaboutit.
Here’s an idea that could work, assuming you have the credit worthiness to pull it off.
Get a HELOC on the home. See if you can extract 100-150K. Contribute the cash to the LLC. Now you have (a) made a meaningful contribution to the LLC that is very useable, (b) maintained the separateness of your personal residence, (c) maintained the integrity of the LLC, and not compromised its creditor shield, (d) maintained the integrity of your home loan, and not exposed yourself to a due on transfer situation, and (e) maintained the capital gain exemption when you sel the personal residence.
What is your partner bringing to the table? Explain why he is important to the mix. Maybe there is some other way to achieve your objectives, without complicating your life unnecessarily.
I live in Florida and have owned my current residence for 1 year. I have about 200,000 in equity in my house and I was wondering if I do a quit claim deed over to my LLC (owned by my brother and myself 50/50) and then took out an equity line under the company name to purchase more homes as investment, does my LLC have to hold on to the property for 2 years before it sells it to bypass capital gains or would I have to quit claim it back to me for at least another year before selling to get the benefit of tax free money? One last thing, what do I do about the homeowners insurance? Would it carry over to the LLC since I am a member managed LLC or would I need to change the policy over? Would the policy have to be a commercial policy or a residential policy? I hope someone can help. Thanks!!
If the property is in you name alone now, and you are going to transfer it to an LLC in which you are a 50% member, you will definitely be in violation of the due on sale or transfer clause in your mortgage. I do NOT recommend doing this. This is TOTALLY different from transferring a property from your own naem into an LLC that you own 100%.
If this is your personal redidence, why are you even thinking about putting it in an LLC. Do you intend to start paying rent to the LLC? If not, you will not enjoy any of the normal creditor protections that LLCs offer (because you are not treating the house like an LLC asset).
When you transfer the house to the LLC, you LOSE the capital gain exemption.
Bottom Line: This is not an investment asset, so forget about the LLC idea.
I just though of the loosing capital gain exemption after I posted the message. I agree with you but how else can I use the equity in my primary residence to put into my LLC partnership with out putting the liability and burden of a HELOC under MY credit? My basis in the property is 400K, my property is worth
600K. Can I make the company a 1/3 “partner” with me in the property…and let the
company liquidize its stake in hard money? I do not want to sit on this profit for another year when I have several investment deals to do with my company and all the money is in my house!! How should I do this? Any suggestions?
Posted by Mike W - LV on July 25, 2005 at 24:11:06:
If you pass the IRS sec. 121 test, ie. you’ve lived in the property any 2 of the last 5 years, your profit is tax-exempt up to $250k if single, and $500k if married.
So, why not sell the property, take your profit TAX FREE and invest it the best way you know. You can probably rent the house back from the new owner for less than a new loan would cost. You would NOT have to qualify, since you are not borrowing any money. You won’t have to move if you lease it back either.
Why borrow your investment capital when you can get it for free?