Can I buy a rental property in my own name and then transfer it to an LLC?

This response will provide general guidelines on how to transfer personal property as opposed to real property (land, lodgings, etc.) to your LLC. First, I will provide a brief overview of the tax framework for LLCs. Then, I will provide rough instructions that will allow you to complete the transfer.

Limited Liability Companies (LLCs) are not taxed on their profits directly. Instead, profits “pass through” the business and the LLCs members report the profits on their personal federal and state tax returns (if the state has a personal income tax). Assuming your business is not automatically classified as a corporation, the IRS will either treat your firm as a sole proprietorship if your LLC has one owner or a partnership if the LLC has more than one owner. If your LLC is a sole proprietorship, you will report its profits or losses on your personal income tax return. If your LLC is a partnership, you and your partners will report its profits or losses in proportion to your ownership shares in the firm.

While each state does allow small business owners to transfer their personal property to their LLC, each state’s tax system is different. Please message me with your state residence so I can provide you with more details. Though an LLC is a pass-through entity, and therefore does not pay taxes itself, it can pass on higher taxes to LLC members as a result of the property transfer.

You can transfer the property by creating a document showing you donated the property to the company. Have the document notarized and record a warranty deed or bill of sale transfer with your county clerk showing the company now owns the property.

If the LLC sells the property at a later date, the gains on the sale will be taxed. Because the LLC doesn’t pay taxes, this means LLC members will pay the tax. Ensure that all members of the LLC understand this tax obligation before you transfer property to the company.

Also, as to be expected, if your LLC uses the transferred property to produce income, you will end up paying tax on that income. The LLC will pass the tax liability on to you and the other LLC members, and you will pay individual income taxes on it.

Remember that if you want a respite from high property transfer taxes, your LLC can depreciate any assets it owns, and this includes property you transfer to it. This depreciation will reduce the tax bill on any income from the property and will be very helpful if you have a rapid depreciation schedule.

If this response did not address all your questions, feel free to message me with anything else that may be on your mind. Thanks!

Need assistance transferring your personal property? Our attorneys on LawTrades are very experienced at strategically setting up LLCs for investment and real estate purposes. Stop by for a complimentary consultation!