You might want to sell your house to your business for several reasons. Maybe you want to buy and move into a bigger personal residence, but instead of selling the current one to someone else, you would rather sell it to your LLC and put it up as a rental property.
Or, you may have bought the house for rental purposes under your business name. So, you want to transfer it to an LLC for a tax advantage. Or, perhaps you want to protect the property against personal liability.
In all these scenarios, you can sell your house to your business. It is best to sell your house to an LLC rather than other non-limited types of business.
Selling to an LLC offers tax and liability advantages that non-limited types of businesses don’t. The exact process of sale depends on whether the house has a mortgage.
This article will discuss the advantages and disadvantages of selling your house to your business and how to go about it. It will focus on the context of selling your house to an LLC.
The following are the top advantages of selling your house to an LLC:
Following the amendments made in the income tax relief regulations, it became apparent that owning rental property as an LLC is more beneficial than owning it as an individual. Instead of paying an income tax, the LLC pays a corporate tax on profits, which in most cases is much lower than the income tax.
Furthermore, your LLC may be eligible for tax exemptions, benefits, or deductions only available to LLCs, e.g., Inheritance Tax.
Putting your house in an LLC separates it from you. Therefore, creditors cannot claim the house to pay any personal debts you owe them. However, the house must have a business purpose for the limited liability to apply. You should rent the house to a third party for it to be considered a business asset eligible for liability protection.
If your house has equity, once you sell it to your LLC, it can be used as a deposit for a director’s loan. This means that you can be able to use it to get a “buy to let mortgage” for the company. Furthermore, it increases your LLC’s real estate portfolio.
The following are the top disadvantages of selling your house to an LLC:
Capital gain exclusion only applies to individual taxpayers with a limit of up to $250,000 for individuals and $500,000 for couples on the sale of a property that has gained equity.
The caveat for the exclusion is that the house must have been your primary residence for the last 5 years and was not being used for rental income.
Therefore, you will be expected to pay capital exclusion gain tax when selling your house to your LLC. Also, the house will no longer be eligible for mortgage interest and property tax deductions. You will also incur additional tax transfer charges.
LLC liability benefits only apply if you use the house for commercial purposes. Therefore, if you sell the house to your LLC but still live in it, limited liability will not apply. If you are sued in a personal debt recovery case, the court may disregard that the LLC owns the property, and you will lose your liability protection.
Some people opt to rent the house themselves and pay rental income to the LLC. The downside of this option is that there are major tax implications as the rental income is subject to being taxable income for you and the business.
Often, people refer to the process of selling their house to an LLC as a transfer. Yet, it is not, and the transfer process is quite different.
When selling your house to your LLC, you must follow the home sale and purchase process, like you would if selling to a different person, including the associated costs and fees. The only difference is that the process takes shorter, especially for a cash buy, because you are technically both the buyer and the seller.
Below are the steps to follow when selling your house to your LLC.
The best method of selling will depend on whether the house is on a mortgage and if you have to move money for a mortgage.
If the house is on a mortgage, contact the lender before initiating the sale process. You must have kept up with your mortgage payments to increase the chances of the lender approving the sale of the house to your LLC.
Most mortgage contracts have a due-on-sale clause, which stipulates that the mortgage is not transferable on sale. Therefore, you are required to pay upfront the owed amount on the mortgage before you can sell the house. Although the clause is primarily for when you are selling the house to a third party, it may also apply when selling your house to your LLC.
While it is not explicitly stated in your contract that you need to consult with the lender before selling the house, even if to your LLC, not consulting can cause the lender to feel disregarded in a matter they have an interest in, resulting in reinforcement of the due-on-sale clause.
Also, if the market interest rates are much higher than your mortgage rate and home value, the seller may opt to call your loan to enable them to re-lend it at a higher interest rate.
As such, when selling your house to your LLC, the lender has the discretion to decide whether to enforce the due-on-sale or not. If they do, you will be required to pay the pending mortgage amount before selling the house to yourself, or you risk foreclosure.
However, the lender may agree to transfer the mortgage to your LLC depending on its financial profile and relationship with them.
Selling Your House That Is Not on Mortgage to Your LLC
The best option for your LLC to buy your house is through a cash buy. It is straightforward and takes a short time. Note that you cannot sell it at a discount even though it is your house and it is going to be a cash offer.
You have to sell it at fair market value. The sale and purchase must be completed on the same day. Therefore, the LLC must have the funds available for the cash offer in the account at the point of initiating the sale. If it does not have all the money, consider getting a bridge loan.
Make sure to pay all the applicable fees and taxes, including stamp duty land tax, capital gains tax, legal/conveyance fees, and early redemption charges.
Two main types of deeds can be used to transfer the title of your house from your LLC in this kind of real estate transaction – quitclaim or warranty deed. You should have a warranty deed that you obtained after purchasing the house.
Usually, warranty deeds are used to transfer property between unrelated parties. On the other hand, a quitclaim is suitable if you are transferring property between related parties.
Therefore, you can use a quitclaim or warranty deed to transfer your house to your LLC. Fill out a quitclaim or warranty deed form to initiate the deed transfer. You can obtain it online or have a real estate attorney draft one for you from your county recorder’s office. Since deed requirements vary from state to state, confirm the requirements specific to your jurisdiction.
In the deed application form for this real estate transaction, the LLC is the grantee, and you are the grantor. Make sure to provide your name as it is in the current deed and your LLC’s correct and full legal name. You may also be required to specify the purchase price for the property.
As the grantor, you must also sign the deed before witnesses. In some states, the grantee is also required to sign the deed so someone else will do so on behalf of the LLC. Once the title deed transfer is complete, you should submit it to the real estate registrar in your city for recording.
Legally, you are allowed to sell your property to your business as long as you follow the due process. Nevertheless, it can be advantageous or disadvantageous depending on whether you buy it with a cash offer, the house has a mortgage, and if the house will be rented out.
If you transfer the house and rent it out to other people, you are eligible for liability protection and tax benefits as opposed to if you live in the house as your primary residence and pay property tax to the company.
Besides, the ownership of the house by the LLC and proceeds from renting build up your business’s real estate portfolio and financial profile. On the other hand, you will incur additional costs when selling your house to your LLC, such as capital gains.
USEFUL RESOURCES:
Can I sell my house to my son for $1.
Can I sell my house to my business?
Can I sell my house with an open insurance claim?
Can I sell my house while in forbearance?
Can you sell a house for more than appraised value?
Can I sell my house after refinancing?
Can I Sell My House Before Paying Off the Mortgage?
WeBuyHousesInDenver.org is the premier cash for homes in Denver and the surrounding areas. We specialize in buying any house in any condition. Looking for an easy way to sell your house for cash? Contact us today or fill out an online form and our team of experts will get to work, quick and smart, to help you get your house SOLD!
WeBuyHousesinDenver.org is a cash for houses company and we are experts at buying houses in Denver and all of Colorado. Our mission is to give the people of the Mile High city the best solution to sell any house. When you sell your house to us there are:
This is how selling a house in Denver should be!
Fill out the form to get your no-obligation cash offer today.
WeBuyHousesInDenver.org is a legitimate house buyer and is your solution to selling your house, because as Denver’s number 1 cash home buyer we will buy any house in any condition so if you want a cash offer on your property simply give us a call or fill out an online form and our team of experts will get to work, quick smart, to help you get your house SOLD!
The latest real estate news, forecasts, insight, and advice are brought to you by the leading authorities in the Denver housing market. We have ears and boots on the ground in the Mile High reporting the facts. Extensive research goes into all our articles and we gather information from trusted real estate experts, renowned local Denver housing specialists, home buyers, and more. We buy houses Denver and as accomplished professionals with a proven track record, we now want to share our experiences with you. Please enjoy!
Moving to a new city can be both exciting and overwhelming. Denver, known for its vibrant culture, stunning natural beauty, and thriving job market, is
Value add in real estate means finding ways to make a property more valuable. This can include things like renovating, improving operations, or changing how
Colorado Springs is a great location for rental property owners, but even in high-demand rental markets, selling your rental property sometimes makes financial sense. The
We’re a service-focused, home buyer that specializes in helping homeowners get rid of burdensome houses quickly. We are Colorado cash buyers who can buy your house fast with a fair all-cash offer. Imagine an instant online quote to sell as-is, without realtors and on your timeline! As a house buyer that’s what we offer. Therefore, if you need to sell your house fast and need a trusted professional home buying company look no further because we buy houses fast for cash.
We Buy Houses In Denver, 1337 Delaware St, Denver, CO 80204
