Husband and wife purchased SFH with plan to use as rental. NO MORTGAGE EXISTS. Would like to establish LLC and transfer the property to LLC. 2 questions: Thinking of establishing the LLC as a single member LLC (wife only) to make tax preparation easiest. Any suggestions about this ? Any disadvantages? (We are in Maryland).
While I don’t think that the transfer from Husband and wife to LLC will trigger a transfer tax scenario, was wondering if anyone has done this in Maryland and can verify. Also, when the transfer form asks for a “consideration amount” what do you put here? (amount you paid for the property? or a minimal amount like I’ve seen $10)? Will either of these amounts affect whether you have to pay transfer tax in Maryland.
Again, there is no mortgage so all the scenarios of a bank calling the loan due to transfer do not exist. Any help/advice would be greatly appreciated. Thanks.
Since you and your husband are currently on the title I think easiest thing to do is establish a duel member LLC and then alocate 99% of the tax benefits to you / 1% to your husband as a member and then there is no transfer tax as your just sticking ownership into an LLC. You can be 50 / 50 owners but alocate 99% of tax benefits to one member!
Why do you want to stick this in an LLC? Is there a strategic reason?
I think I would consult an accountant on what you propose to do!
Thanks for responding. We want to establish the LLC because we will be using the property as a rental. The reason we were considering setting the LLC up as a single member LLC as opposed to having us both on the LLC, was that we thought the Single Member LLC made filing taxes easier. (A single person LLC would have a simpler tax return - - it would not have to file partnership taxes.)
Even if there are no transfer taxes, you will still incur a cost.
For property in MD, you can do a NO CONSIDERATION deed between spouses. I did several in MD in 2010 from myself as sole owner to myself and my wife as joint owners with right of survivorship for $0 consideration.
Some properties were free and clear and others had mortgage liens. In addition to the attorney fee to draw up the deeds, I paid a $40 recording fee for each deed.
If you transfer title to an LLC (even if you don’t use a warranty deed), you will also want to get a new owner’s title insurance policy. At the very least, get your existing title insurance policy endorsed to add the LLC. Endorsement cost may be around $150. Talk to the title and escrow company that handled your settlement for more details.
While you are looking at insurance, don’t forget to change the named insured for your hazard insurance policy from your name to the LLC and also add a liability rider for the maximum amount offered by the insurance carrier.
BTW, just to be sure you are clear on the tax return issue, a single member LLC does not file a federal tax return at all. Instead, you claim all your income and rental expenses on Schedule E of your personal 1040 as if the LLC did not exist. As a general rule, there are no tax advantages to holding rental property in an LLC as opposed to holding in your own name. If tax considerations are your reason for forming the LLC, there aren’t any. So maybe you don’t need the LLC after all.
Thanks for the great info Dave. I’m still a little confused about the transfer to the LLC. You say “For property in MD, you can do a NO CONSIDERATION deed between spouses. I did several in MD in 2010 from myself as sole owner to myself and my wife as joint owners with right of survivorship for $0 consideration.” I know this is true but that is not what I am planning on doing. Does the zero consideration still apply if I am transferring the property (owned jointly by husband and wife) to an LLC we establish (either with both our names in the LLC or as a single member LLC with just one of our names)?
I am aware that the transfer is not free of fees. I never thought, nor did I mean to imply that I thought that I could do this without incurring any cost. I am just trying to limit those fees (a $40 recording fee is much much cheaper than the thousands of dollar associated with transfer taxes). I had hoped that if H&W owned the property then transferred it to themselves (in their LLC with no new members added), we could record this as a $0 consideration transfer thereby not triggering transfer tax. I guess that was my real question. I apologize if I wasn’t clear - I’m new to this and aren’t completely sure how to articulate my questions.
I had already contacted the Title Company and the HO Insurance company but I’m glad you mentioned that in case someone else is reading these posts with similar questions.
I am aware that a single member LLC’s taxes are fairly simple and are handled on the 1040. I am also aware that if the LLC is formed under both our names, we will be required to fill out a more involved tax forms ( Form 1065 and possibly other schedules like Schedule K, etc). The reason we were considering forming the LLC in one name versus both was to simplify our taxes. Can anyone speak about filing a return for an LLC that had to complete the 1065 form and any accompanying schedules and whether or not they thought it was a huge hassle?
Finally, we are not looking to form an LLC for tax benefits. We are looking to form the LLC to limit our liability in a rental property we purchased and will be transferring to the LLC for that protection. The tax question came up because I am trying to determine if, for simplicity purposes as pertaining to filing tax returns, it would be better for us to establish the LLC as a single member or as a couple.
Again I apologize for not being clear. If anyone can answer any of these questions, it would be a huge help. Thanks in Advance.
You can look at the MD Dept of Taxation website and see the property records online through three transfers. I see several no consideration transfers in the past to entities and to trusts and between related individuals. Have no idea whether any transfer fee was assessed or not. This question is best answered by the staff at the county courthouse where you will be recording the deeds.
Single member LLC for rental property that you manage yourself does not offer nearly the asset protection you might expect. Some on these boards will tell you that the asset protection for a single member LLC is non-existant, so don’t waste your money on a single member LLC when adequate liability insurance will do what you need. (Even with the LLC, you still need the insurance anyway).
The problem with your plan is that your sole reason for transferring the property to the LLC seems to be “asset protection”, or in other words, the only purpose of the LLC is to shield your assets from your creditors in the event of a lawsuit. In this case, you may be running afoul of the Uniform Fraudulent Transfer Act.
Best to have this conversation with an attorney who understands the LLC case law for your state and who can guide you through the fraudulent transfer minefield.