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One of our readers writes in:
“Hi. The personal assets I have are bank accounts, a house, and brokerage accounts. How can I protect that from lawsuits if someone gets hurt on my property? Thanks! Gary.”
Answer:
First, I recommend reviewing your insurance policies, as that provides some coverage in the event of a lawsuit.
Second, to get full liability protection, you’ll need to transfer the house from your name to your LLC. The LLC must own the property in order for it to provide personal asset protection.
Just having your house (owned by you) and a separate LLC does not offer protection.
We made a video on this before, which I think you’ll find helpful:
When to form an LLC for real estate?
In your case, since you already own the property in your personal name, you’ll need to transfer the house from yourself to your LLC.
You’ll need to contact a local Real Estate Title Company to see how to transfer the deed. It’ll most likely be a $1 sale from you to the LLC, but there are some things to keep in mind:
- You will incur transfer taxes because of the sale of the property.
- If you have a mortgage, that could prevent the sale.
- You will need to re-register your utilities in the name of the LLC.
- You’ll need new insurance for the LLC.
This is your recommended action list:
- Call your title company to check on transfer tax.
- Call your tax professional to ensure there are no negative tax consequences to the transfer.
- Review your mortgage to see if it has a due on sale clause.
- Call your bank (if you have a mortgage) to ask if they will allow the transfer.
- Call a lawyer to go over anything you are not 100% clear on.
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
Is it possible to keep a 4 unit property I own in my personal name, and start an LLC and write off expenses related to managing the property ? Even if the LLC doesn’t own it ?
I’m curious of this as well. Since the rental property is under my personal name, can I still claim the contractor costs, mortgage payments, and miscellaneous maintenance goods & service as expenses for the LLC? I assume yes but I’d love to know more about how this works.
Hi Veronica, you can already write off mortgage interest (you can’t write off entire mortgage payments). You don’t need an LLC to write off the expenses of your investment property. Said another way, forming an LLC wouldn’t give you tax advantages here. Just asset protection.
Hi Jacob, I recommend speaking with an accountant about the details to see what is and what’s not reasonable.
What about paying rent to my LLC for me to live in the home that’s in my LLC’s name? No mortgage, just a personal rent payment from myself to my LLC which has the deed, etc., in its name for this property.
What would be the angle/purpose here? I’m not sure that would be necessary.
Could I claim the property as my primary residence (for cap gain exlcusion) if I live in it, but the property is co-owned with another member through an LLC?
I’m not 100% sure on this. Please check with an accountant.
What are the steps to take if I wanted to purchase my current home (personally owned) from myself with my LLC? Is there restrictions from doing this?
Hi Tyler, if you were to do this, your LLC wouldn’t actually be purchasing the home (and spending money). You’d just work with a title company to transfer the deed from yourself to your LLC. There may be restrictions if you have a mortgage in place though. If you do, you can contact your lender and see what they say. Or you could speak with a real estate attorney about the pros and cons of using a quit claim deed. Hope that helps.