Guys,
I’m buying my first home and closing it in my name. I have a deal with an attorney where he’ll transfer the home to an LLC free of charge.
But my question is, what’s the benefit of having it put into an LLC? Does it change anything in regards to paying taxes on it, depreciation, etc. etc.
I know this is a newbie and well, I’m a newbie in this area. If you have a good source to learn more about this, please post it…
Insurance is a better solution for a newbie. It will provide the same benefits as any AP plan you can devise. You can revisit LLCs, etc when you approach a net worth in excess of $5M. At that point, you have something to protect and the resources to protect them properly. Proper planning will require a multilayer, comprehensive plan for your life, not just your real estate. It is so much more than putting property in an LLC.
If you are interested in the privacy/smoke and mirrors aspect of asset protection (i. e. LLCs will prevent a lawsuit from being filed), you only need a trust. It does the same thing as everything else without all the expenses. The stuff you read online or see at conventions doesn’t work as advertised. In the past, an LLC may have scared off people most of the time. It doesn’t anymore. Plaintiff’s attorneys and creditors have their own conventions where they learn to beat LLCs and other asset protection garbage pushed by gurus.
A good attorney will stop a bogus claim quickly and insurance covers most legitimate claims. That does the job without the need for an LLC or complicated planning. If there is a possibility of a multimillion dollar judgment, a single LLC won’t do much good if you lose. Even if you win, you will have spent many thousands of dollars defending yourself.
If this is your “first” home, do you mean that this home is to be your primary residence? If so, I have been told that the last thing you want to do is put title to your primary residence in an LLC.
I don’t know the reasoning behind this warning, but maybe BLL will elaborate for us.
An LLC is a business entity. There is no business involved with personal assets and thus no reason for an LLC to own a personal residence. It will simply be ignored in any legal proceeding. There is no homestead allowed for an LLC or the 250/500K exclusion for capital gains. There is no reason to give up those benefits for nothing in return. Anyone who claims putting a personal residence or any other personal asset in an LLC, FLP or any other business entity is either a crook or completely ignorant. In either case, they should be ignored.
Whoa… if I read that correctly, I could lose my $250k tax exclusion if I put the property into an LLC? :shocked
Forget that idea. BLL, THANKS for pointing that out. I’ll look into putting it into a trust as you mentioned.
I didn’t realize this was a personal residence. The approach is very different from investment property.
Placing a residence in a LLC that is disregarded for tax purposes will not jeopardize your 121 exclusion however, I only recommend this strategy when their is considerable equity at risk and the owner has high liability exposure. The problem with using a LLC for your personal residence is its lack of business purpose. If you have several rental properties in various LLCs and you establish another LLC for your personal residence that does not have a business purpose (do you plan to rent your residence from the LLC – probably not) then I believe it may raise issues as to your overall intent. When you create an asset protection entity you must do so for a reason other than to remove your assets beyond the reach of creditors (this includes present and future). With investment assets its a fairly easy to establish a legitimate business reason for your LLC but not so with your residence. So by utilizing a LLC for your personal residence a creditor will claim that all your planning was creditor and not business motivated. (I am referring to fraudulent transfer laws in this post.)
A preferred solution to protect your personal residence would be a Home Equity Line of Credit to mask your available equity then deed the property into a land trust for anonymity. Proceed cautiously if you live in a state that has a high or unlimited homestead exemption.