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Can I Sell My House to My LLC Legally? (Explained)

Max Smith

Reading Time: 6 minutes

When buying a property, you often purchase it in your name. But later, you may feel at risk with your liabilities and get into trouble with your property protection. Then, a question may arise in your mind: “Can I sell my house to my LLC?

An LLC is a legal entity, and its property is safe from your personal liabilities. As a result, your property gets LLC protection. 

But it may face some tax consequences. If you already have an LLC, you can make the property title transformation. Otherwise, you can open an LLC and make the title transfer happen.

 But do you know how to transfer property titles to an LLC? Let’s figure it out below.

There are several steps to follow when you are transferring your property to an LLC. The steps are simple and are given below.

1. Talk with the Lender

Do you have any mortgages on the property? If yes, then you should contact your lender first before transferring it to the LLC. But why?

The lender may put in a few more conditions or fees if you transfer the property to an LLC. Some of them are:

  • Require a personal guarantee.
  • One-time fee.
  • Adjusting the interest rate & more.

Lastly, your lender may ask you to repay the loan and start with a new loan under your LLC.

So, it’s really essential to come to a settlement with the lender first. Then, you can start to form your LLC and transfer property titles.

2. Form your New LLC

Now, it’s time to form your LLC. There is a formal process to maintain and hire a registered agent to form your LLC.

You must make the key document, “Article of Organization,” and the supporting document, “Operating Agreement,” and then fill out the registration form with the required fees. The fee varies from state to state. Now submit it to the state corporation commission or division.

 If you want to know LLC registration costs state by state, then read the article about LLC Costs by State.  

The “Article of Organization” describes the key components of your LLC. For example, member details, LLC addresses, share numbers, registered agent details, and more.

Again, the operating agreement includes a detailed description of the responsibilities and rights of the members, how to sell a shared membership, how to handle conflicts, and more.

3. Get an EIN

EIN (Employer Identification Number) is free to get. You may visit the IRS official site and apply for an EIN.

It’s a social security number for a business. Plus, it’s helpful when you have employees. It requires the following purposes:

  • Opening a business bank account,
  • Filing tax returns,
  • Paying employee payroll taxes, and
  • Issuing 1099 forms to contractors.

4. Create an LLC Bank Account

One of the key components of forming an LLC is opening a business account. You may need to show your EIN and “Articles of Organization” to the bank. It will prove that your LLC is in good standing and has been approved by the state. 

Plus, it will be a separate bank account for your LLC. It helps to separate the banking transactions from your account.

5. Transfer the Property Title

Do you know how to transfer a property title? There are various ways to transfer property from an individual to an LLC.

Moreover, there are also ways to transfer property from an LLC to an individual. If you want to know, then read our article about How to Transfer Property from an LLC to an Individual.

You can file a quitclaim deed to transfer your property to your LLC. It’s the most common method. It’s a deed that instantly transfers property. However, it does not guarantee that the property is free of debt.

Secondly, you can sign a general warranty deed to transfer your property. It is clear that the property is free from any third-party claim.

In a deed, you are the grantor, and LLC is the grantee. You may be required to pay any associated fees and inform the IRS and state officials about the property title transfer for further taxation effects.

Furthermore, can you sell your home to your LLC instead of making a quitclaim deed? Yes!

If you want to avoid a deed, you can sell the property to your LLC and get money in your account. It will cost your LLC, but it will be an asset. Plus, you will also get money for selling the property.

6. Update Agreements, Permits, Leasing, and Utilities

As the property is now transferred to the LLC, you should inform all third parties. Plus, you also need to update any existing contract relating to the property.

For example, you may pay a deposit to a utility company because your LLC is new. But it’s refundable after a specific time if you pay all the utility bills on time.

Tax Consequences of Transferring Property to LLC

Did anyone ask you, “Can I sell my primary residence to my LLC without tax consequences?” Then give a straight answer of NO!

Transferring property between a business entity and a personal name results in taxes. In fact, the income generated by the property is taxable for the LLC.

Furthermore, if the value of the property has increased, your LLC may be subject to capital gains tax.

However, if you have a single-member LLC, then it is a disregarded entity in the eyes of the IRS. There will be no tax consequences. 

But in the future, if your LLC gets more members and turns into a partner LLC, there will be tax consequences. It causes excise taxes.

For example, suppose you transfer a property with a cost basis of $2,000 and a fair value of $3,000. In that case, the property value transferred to the LLC is $350,000. 

It means there is a potential tax liability of $150,000 in a capital gain for your LLC, which is the difference between the cost basis and fair market price.

Wait, there is more.

Do your rental properties hire employees? For example, maintenance staff, managers, or any other administrative person. So, your LLC will be responsible for paying employee payroll taxes. 

It includes withholding and submitting federal and state income taxes. Plus, it also involves Social Security and Medicare contributions.

Can I Sell My House to My LLC in Texas?

You can sell your house to your LLC in every state in the U.S., including Texas. Its legality is 100% allowed by state laws. But there are some laws to abide by. 

You should contact your state offices or agencies to know the exact rules. Then, work on them and make official papers to sell your house to your LLC. In fact, you can form a new LLC and transfer your property to it.

So, wherever someone asks you, “Can I sell my home to my LLC? Please give him a big yes!

Conclusion

Ultimately, the answer to your question, “Can I sell my house to my LLC?” is yes. But you must follow the formal steps to make the title transfer smoothly. In addition, get a ready mindset to pay taxes for the property transaction. Lastly, every state will allow you to transfer property to your LLC, but the rules may vary. So you need to be careful with the rules. 

In the end, get an expert service provider to help you complete the legal steps and papers to make a successful property title transformation.

Frequently Asked Questions

Can I sell my house to my own LLC to avoid capital gains tax?

 Yes, but only if your LLC has a single member. A single-member LLC is a disregarded entity. So, it has the benefit of avoiding capital gain taxes. On the contrary, if your LLC has multiple members, you cannot avoid paying the capital tax.

Can I sell my house to my LLC if I need money?

Of course, you can sell your house to your LLC if you need money. But the intent should not be to gain the IRS home sale exclusion benefit. As an LLC is an entity, it has full rights to buy property from you. Plus, if you need money to pay your property mortgage loan, then contact your lender first.

How much does it cost to transfer property to an LLC?

The average cost of transferring property to an LLC is $100. It varies from state to state. Plus, there can be closing costs.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


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