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

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.