Skip to main content

Transfer of rental property into an LLC for asset protection under PA LLC law

Philadelphia, PA |

I own a rental property under my name and wanted to transfer it to an LLC for asset protection as well as tax purposes. I also have the mortgage under my name as well. Can I file a quitclaim deed with the county? Is there a better vehicle or will this suffice? Do I need to transfer the mortgage to the LLC as well in order to take the tax deduction on the mortgage interest? I'd rather not transfer the mortgage as I'd be hit with closing costs fees, transfer fees, and a higher interest rate.

I have no mortage on my rental duplex but want to transfer it to an LLC for asset protection. If I transfer my duplex to an LLC, to I have to pay Pennsylvania and Allegheny County transfer taxes of 1% each? Jon Minor

Attorney Answers 2

Posted

Your question raises several important issues. First, a Quit Claim Deed will transfer the ownership of the property to the LLC, HOWEVER, this may also trigger a clause in your Mortgage known as the "Due on Sale Clause" Basically, the real property serves as security for the loan made to you. The transfer of title to the property directly impacts the lender's security interest in it. For this reason, most Mortgages include a clause that will permit the Lender to accellerate the Note and make the total balance due immediately upon transfer of title of the real property securing the Note. Some Mortgages avoid this situation by being "assumable." These mortgages are rather rare, however, in todays economy. Moreover, even if your mortgage is assumable, the LLC will have to meet certain underwriting requirements before the Lender will agree to let it assume the Mortgage.

With respect to the tax deduction on the mortgage interest, that would belong to the LLC following the transfer of the Note and Mortgage. Depending upon what type of LLC you have set up and how it is being taxed, this may or may not have a significant tax implication to you.

Another issue that you may not have considered is the Pennsylvania Real Estate Transfer Tax. The transaction you briefly describe does not appear to fall within an exception, therefore, the transfer to the LLC will be subject to Real Estate Transfer Tax.

Mark as helpful

29 found this helpful

1 lawyer agrees

Posted

I would look at the wisdom of doing this. What would be the point of transferring rental property into the LLC? The point of asset protection is to keep as few assets in the LLC as possible (if you are concerned about creditors of the LLC). You should keep the property in your own name and use the LLC as a property management business that leases the properties. That is what CPA's and attorneys usually recommend. Do not do any of these transfers without first discussing the tax and legal implications with professionals licesensed in your jurisdiction.

Mark as helpful

40 found this helpful

1 lawyer agrees

7 comments

Asker

Posted

Chris, Good point about creating a property management under the LLC, but it does it really prevent the tenant from going after you personally?

Christopher L Cauble

Christopher L Cauble

Posted

It depends on whether or not your lease agreement with the tenant is with YOU or with the LLC and whether or not you have decent disclaimers of liability. Of course, a tenant can always try to sue you personally...but a good lease agreement can at least protect you from getting a judgment against you. Every state has different laws regarding piercing the corporate veil..but I always advice my clients to use corporations or limited liability entities to protect themselves as much as possible.

Asker

Posted

Hi, Chris: This is somewhat confusing to me (a novince). I thought the purpose of LLC is to have move the property into it to avoid liability. You seemed to suggest that I should not do that..

Asker

Posted

Yes, the LLC will protect your asset, but what if most your assets are under a single LLC. You still end up with most of your eggs in a same basket... as such the Management Company LLC may have some merit. Can any one refer me to someone in PA that knows how to structure this property? Tks. R

Christopher L Cauble

Christopher L Cauble

Posted

Well--if you move property INTO the LLC, it increases the value of the LLC so that would mean that if the LLC is sued, there would be more assets available to pay creditors. It is better to keep assets out of the LLC and in your personal name and have the LLC act as a management entity for your personal assets. This is how the LLC (or corporation) acts as a "shield". I usually advise people to keep real estate and large assets out of the corporation or LLC and just keep a business account to manage the property and pay business expenses in the LLC. But, every company and business is different so I cannot know how I would advise you in your particular situation. You should talk to an attorney who is well versed in dealing with these entities in your jurisdiction before making any major transactions. Additionally, there may be tax issues which would require the help of a tax professional or CPA.

Asker

Posted

There is a way to protect multiple assets by using s-LLC

Asker

Posted

I see, thanks for the valuable advice.

Real estate topics

Top tips from attorneys

What others are asking

Can't find what you're looking for?

Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer

Browse all legal topics