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How to Transfer Property from LLC to an Individual

Max Smith

Reading Time: 5 minutes

What will you do when you feel the liability risk of your LLC property? You may utilize the option to transfer property from the LLC to an individual. Yes, it’s legal and a practical way to get back your personal property from the LLC title.

Taking out a property from your LLC will have some tax consequences. You may need to follow formalities and make official documents to transfer the property successfully. 

But do you know how to do it? Let’s figure it out.

Property ownership in an LLC is transferable. There are various ways to take out property from an LLC. Let’s see some ways to take out a property from an LLC.

Changing Structure

When you change your LLC structure, it may release its property to restart a new journey. Get help from your operating agreement. There must be one or more rules regarding property claims while changing the structure.

Selling Property

LLC owns the property and can sell it to another party. The buyer can be an individual, another entity, or a member. The LLC will make a deed and sell its property. So, it’s also a way to take property out of an LLC.

Ownership Transfer

LLC can transfer its property to members. It can be real estate, a car, or a house, and it protects the property from LLC liabilities. You may need to make a deed to get property ownership from the LLC. 

Moreover, ownership can be transferred to any legal member. The operating agreement can also mention one or more members eligible to receive property ownership. 

Lastly, there are several factors to watch out for when an LLC transfers its property claim to an individual.

7 Steps to Transfer Property from LLC to an Individual

A formal process exists to transfer the LLC property ownership to an individual. You must abide by the operating agreement and your state-specific rules. 

Note down the checklist below to ensure a perfect property transfer process.

  • Call for a Meeting

Fix a date and time to hold a meeting with the other members of the LLC. There will be a vote, and the majority will go for the property transfer or sale. The conference will decide on various factors, such as choosing the business property, deciding who will own the property, setting the price, closing the date, and more.

  • Grant Legal Authority

An authorized person must sign the deed and title to the property. It can be an LLC member, manager, or officer. Your operating agreement may specify the name of the authorized person who can transfer the property on behalf of the LLC.

  • General Warranty Deed

It’s a way to get the property from the LLC and keep it safe from LLC debt. As it was the property of an LLC, it was liable for business debts. But when its title is transferred to another party or person, the property becomes free from debt by doing a general warranty deed.

So, a general warranty deed helps an LLC successfully transfer its property to a third party. It contains the property’s details, including the transaction amount, and ensures it is free from liens.

  • Current Distributions

LLC makes distributions to the members. It can be cash or property. So, by distributing property to the members, the property gets out of an LLC. It can be a legitimate sale of property. 

According to the general rule of Sec. 731(a), the current distributions of cash or property are not taxable to the distributee member if the received money does not cross the limits of a member’s tax basis in the LLC.

  • Quitclaim Deed

A quitclaim deed is an easy and faster way to transfer a property claim. It’s different from a general deed. An LLC can use a quit claim deed to transfer a property claim to a member. But if the property has some fault or debt, it will carry on to the next owner.

So, a quitclaim deed from an LLC to an individual is a process of transferring property ownership. But it does not give surety to the property title to be free and clear. It just transfers ownership instantly.

  • Dissolve the LLC

During the dissolution process, the LLC distributes the properties to the members. However, the members may need to sign a deed to transfer property. The assets are distributed based on the owner’s investments. You can check out your LLC’s operating agreement for further assistance.

  • Proof of Good Standing

Contact the Comptroller’s office to obtain “Certificates of Account Status” online. The good standing proves your LLC’s eligibility to transfer a property to another party or a new owner. It demonstrates that your LLC is in good standing with the state. Lastly, every LLC needs to know how to get reasonable standing verification.

Nevertheless, you must maintain the formalities, from calling a meeting to preparing and signing the official papers to transfer the property to an individual. You may also face some effects—for example, tax consequences.

Transfer property from LLC to Individual Tax Consequences

Does an LLC need to pay taxes when transferring the property to an individual? Yes! Whenever an LLC transfers property to an individual, it uses a deed and is considered a sale. 

So, your LLC will pay taxes on any gain from the property transfer. But how do you realize the gains? Calculate the current market value against the original cost. So, you will pay federal income taxes on property sale gains.

Even if the sale is for no money, the property owner’s association dues should be prorated so that it is clear that the LLC paid the taxes and dues during its ownership. However, clarifying who will pay the closing costs, the LLC or the individual, is essential.

Usually, the property value is set to the present market value. If you put a lower value, it will not work, and you may adjust it when paying taxes. 

20% is the maximum long-term capital gain tax rate. If the property is depreciable, the rate can be 25% on at least some capital gain.

Besides, there will also be a recapture of the depreciation. It will be reported as ordinary income on the LLC’s tax return.

If your LLC is a single-member entity, the IRS will consider it disregarded. In that case, state taxes will be on your LLC’s property transfer incident. You must contact an expert service provider to understand the laws in detail and be ready for the tax consequences.

Are you having doubts about LLC asset protection? Then, you can also get a Land Trust. Need some more detail? Then, please read our article about Land Trust vs. LLC Asset Protection.

Conclusion

Ultimately, I recommend you contact an expert service provider to transfer property from an LLC to an individual like you. Although you already got an idea from reading the above discussion, an expert service provider will help you in every step.

Frequently Asked Questions

Can I transfer the property to an LLC with a mortgage?

Yes, but you require permission from the mortgage company. Usually, a mortgage does not transfer to an LLC, while you transfer property to the LLC. So, you remain personally liable to the mortgage company and make regular payments.

Can I transfer the car title from an LLC to an individual?

Of course! It allows the transfer of car ownership from an LLC to an individual. You may need to file a form, pay fees, and submit it to the DMV (Department of Motor Vehicles)

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

On average, transferring property to an LLC costs around $100. The cost may vary from state to state.

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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