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Ask the Real Estate Lawyer - October 4, 2009
By Ilyce Glink and Samuel J. Tamkin
Q: How do I sell my rental property to the limited liability company (LLC) that I have set up?
A: I'm not sure why you would want to sell your own property to a limited liability company which you own and control. Do you perhaps want to simply transfer the title to the LLC?
If you are talking about a true "sale" of the LLC, you would need to draft a contract for the sale of the real estate from you to the LLC. The contract would provide for the normal issues relating to title, survey and other matters relating to the sale of real estate.
At settlement, or closing, you would have documents transferring title from you to your LLC. You would file all of the normal documents relating to the sale of real estate with your state, county and local municipality. In addition, you would also have all the fees associated with the sale of a piece of property along with all the fees associated with the purchase of a piece of property.
In some jurisdictions, the transfer of title would trigger a reevaluation of the property for real estate tax purposes.
If your purpose in transferring the property is legitimate and you treat the transaction as is you were selling it to a third party at an arm's length, you should be fine with the documentation and with the taxing authorities.
However, if you have a different motive, you could have problems with your transfer. If you value the property too low for real estate taxation issues, the taxing authorities could assess the property at a higher level and, in some cases, may have a claim against you for fraud. Some municipalities and other governmental bodies require that a sales price reflect a true market sales price or you have to disclose that the sale wasn't undertaken under true market conditions.
Now if you are merely trying to transfer ownership of the property from your name to an LLC you have created to hold your real estate, you can do it less formally. You may only need to draft the documents that would convey title from your name to the name of the limited liability company. You may decide to use a quitclaim deed or a warranty deed. In some jurisdictions, quitclaim deeds can cause a headache down the line, though in other places, quitclaim deeds are a perfectly fine choice.
You should talk to an accountant about the transfer of the property into the LLC. You probably want to make sure the transfer does not trigger the federal income tax consequences typically associated with a sale of property.
If you transfer the property from your name to the LLC, and you are the sole owner of the LLC and elect to be treated as a corporation for income tax purposes, the transfer should be ignored for federal income tax purposes. It would be as if you and the LLC were the same for federal income tax purposes.
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Samuel J. Tamkin is a Chicago-based real estate attorney.
Ilyce R. Glink's latest ebooks are "Save Your House From Foreclosure" and "The Clutter Collector: How to Get Rid of Clutter Everywhere In Your House," which are available at her Web site, www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 am-1 pm EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022
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