Transferring Real Property into Limited Liability Companies in Florida: Benefits and Considerations

Transferring real property into an LLC in Florida can protect your personal assets if there’s a problem with the property. This means that only the assets owned by the LLC, and not your personal assets, are at risk. However, there are some things you need to consider before making this transfer. If an LLC has more than one owner, a creditor can only get money from the LLC through something called a charging order. This means they can only take money that would be paid to the owner who owes them money. But if an LLC only has one owner, the creditor may be able to take the owner’s ownership in the LLC.

When it comes to taxes, if an LLC has one owner, it’s seen as the same as the owner for tax purposes. If it has more than one owner, it’s taxed as a partnership. But the owners can choose to be taxed as a C corporation or an S corporation instead. Transferring property into an LLC in Florida can have several benefits. For married couples, owning property as tenants by the entirety means both spouses have to agree to any transfer and, if one spouse dies, the property automatically goes to the surviving spouse without going through probate. This also protects the property from the individual creditors of either spouse. An LLC can also be used for estate planning, allowing for tax advantages and control over assets. It can help avoid the probate process in Florida, saving time and money for the property owner’s beneficiaries and heirs. Before transferring your Florida real property into an LLC, there are some things to consider. First, if you transfer your property to an LLC, you will lose some benefits, like protection from creditors and property tax benefits. Also, you may have to pay a tax called a documentary stamp tax, which is based on the value of the property being transferred. If you have a mortgage on the property, that amount will also be considered in the tax. It’s best to buy the property through your LLC from the beginning to avoid paying extra taxes later on. If you transfer your house to an LLC, your mortgage lender might ask you to pay back the loan all at once. And if you transfer your property to an LLC, or if more than half of the ownership of the LLC changes, the tax value of your property might go up, which means you might have to pay more in property taxes. So, before making any transfers, make sure to get approval from your lender and think about the potential increase in property taxes. Title insurance is important when transferring property to an LLC because it can impact whether the existing title insurance coverage will still apply. There are different types of deeds, such as quitclaim deeds and warranty deeds, and they can affect the title insurance coverage. A quitclaim deed doesn’t offer any guarantees, so the original title insurance may not cover the new owner. On the other hand, a warranty deed does provide guarantees, so the original title insurance should still apply. It’s important to check with the title insurance company before transferring property to an LLC to make sure the existing coverage will still be in place. When you transfer a property into an LLC, it can affect your insurance coverage and cost. Homeowner insurance only protects people named on the policy, so if the property is owned by an LLC, there may not be coverage. It can also be more expensive to insure a property owned by an LLC. Financing options and interest rates may be better for individuals buying residential property, but for commercial property, LLC ownership doesn’t make much of a difference. If you buy a property in your name first and then transfer it to an LLC, there are extra risks and consequences to consider. Talk to an insurance professional and weigh the pros and cons before making any decisions. Creating and maintaining a Limited Liability Company (LLC) in Florida involves filing paperwork with the state and paying fees. To stay active, LLCs must file an annual report and pay a fee. They also need to keep detailed records and treat the LLC as a separate business entity, not a personal bank account. If they don’t follow these rules, the owners could be personally responsible for the LLC’s debts. It’s important for LLC owners to have a written agreement, hold meetings, and keep separate financial records. When you transfer real property into a LLC, it may be considered a gift and you may have to pay taxes on it. If the LLC is owned by a foreigner, they may have to pay taxes when they sell the property. Also, LLCs have to report who owns at least 25% of the company and any changes in ownership to the government within 30 days of forming the LLC. In summary, transferring Florida real property into an LLC can have benefits, but property owners should think about potential issues like tax, insurance, and financing before making a decision. It’s a good idea to talk to a lawyer, tax expert, and insurance advisor first. In Florida, if you want to protect your property from certain debts, you can put it in a company like an LLC. However, there are some rules and taxes you have to follow when you do this. If you transfer your property to a company, you have to pay a tax called documentary stamp tax. This tax is based on the value of your property and the amount of any mortgage you owe on it. There are also rules about how much you can save on property taxes when you transfer your property to a company. If you transfer your property to a company, you have to tell the local government about it. A quitclaim deed can cancel your title insurance. Title insurance only covers you if you made specific promises when you sold the property. If you’re thinking of owning real estate through an LLC, there are rules you need to follow, and you have to report your LLC’s activities to the state every year. If you give someone a big gift, like a piece of property, you might have to pay a gift tax, depending on its value. This is a column written by a lawyer named Joseph M. Percopo, who specializes in estate planning, tax law, and business law. He has a lot of experience and education in these areas. The column is about legal codes and regulations related to trusts and LLCs. It’s meant for lawyers who are part of a specific law section.

Source: https://www.floridabar.org/the-florida-bar-journal/transferring-real-property-into-limited-liability-companies-in-florida-benefits-and-considerations/