The real estate scene offers a significant degree of freedom in terms of how you opt to carry out a house sale. One of these freedoms is the option to sell your house under a Limited Liability Company (LLC). So, how do you go about selling a house under LLC?
Selling a House Under an LLC
If you do not own an LLC, then you would need to go through the process of creating one. The process chiefly involves selecting a previously unspoken-for name, filing an organizational certificate, as well as applying for a federal tax identification number (FTIN), among others.
On the flip side, if you already own one and the property you want to sell is under the LLC, then you can:
- Sell straight
- Use a 1031 Tax Deferred Exchange
Selling Straight
This method is advised if you are selling the property for cash. In other words, you are simply looking to take cash from the sale. Here, hiring a realtor to handle the sale for you is ideal. This helps you save time and avoid stress.
In addition, to retain maximum capital gains, it is advisable to opt for flat fee real estate agencies like CA Flat Fee. For a fee of $5,000, you get full service including negotiations, house showings, and comprehensive marketing, amongst others.
Using a 1031 Tax Deferred Exchange
This is the way to go if you plan on using the gains from the sale of the property to purchase or invest in another property. Using this method helps you save significantly in the way of tax dollars. It is especially important to have a real estate agent assist in this process to help ensure proper due diligence and time frames are adhered to.
Transferring Property Deed Under an LLC
Limited Liability Companies can sell and purchase as an entity without any hassle. However, in the event of a sale under LLC, a property deed is required to transfer ownership to the new owner. In order to do this, you would need to have the legal authority to sign the deed of conveyance.
Note that in order for this to happen, the LLC must still be in existence when you sign the papers to provide legal validity. In the absence of this, the deed can be considered invalid and property ownership would not be transferred. This is why you must not dissolve the LLC before the sale.
Upsides to Selling a House Under an LLC
The major benefit that accompanies selling under an LLC is that you are personally protected from liabilities since the property is in the LLC name. In addition to asset protection, there are also tax benefits to enjoy.
Personal Protection From Liability
A major perk of LLC property ownership is that it lowers your personal liability. In a nutshell, it safeguards you and your assets.
For instance, if some of your assets are held in an LLC, and you are sued, only the assets in your name would be considered for damage payment. In other words, you could be selling some other property under an LLC simultaneously, and you are not legally mandated to use the proceeds for settling your personal suit.
This effectively protects any other personal assets you may own and provides you with essential anonymity. These are general guidelines and you should seek specific advice from an attorney.
Tax Benefits
When you own a property and sell it through an LLC, you avoid having to make several tax payments relative to other homeowners whose properties are listed under their names. The major factor that determines how you are texted here is whether your LCC is a sole proprietorship or a partnership.
For a sole proprietorship, your limited liability company is exempt from paying transfer tax when your property ownership title is transferred or sold. You can also request the issuance of a K-1, which ensures that you are not taxed twice on your business and personal property.
This strategy of using an LLC is pretty common, mainly because of the tax benefits involved. Similarly, the amount saved in tax benefits increases as the value or number of property increase.
Professional Outlook
Home buyers tend to opt for sellers who look outrightly legitimate. It becomes easier to trust and as a seller, it becomes easier to sell. Another benefit of an LLC is that since the property would be in the company’s name and not yours, it provides credibility that potential buyers look out for.
And with the services of a CA Flat Fee agent secured, you can rest assured of a seamless home sale and at the desired selling price as well.
Downsides to Selling a House Under an LLC
Like selling a house under a trust, selling under an LLC comes with certain downsides that you would typically not experience if you were simply selling as an individual. Most of the downsides are certainly minor, except the ‘due on sale’ clause that may have to be satisfied for you to move the property to an LLC.
Mortgages and the ‘Due on Sale’ Clause
While moving your property to an LLC is beneficial, you must exercise caution when transferring title from yourself to an LLC. This is because, as the legal owner of the home, your name will always appear on any mortgage document (as long as you qualify for one).
When you move this property from your personal assets to an LLC, the limited liability company’s owner must confirm that the title names on insurance paperwork match the grantee on the home deed. In the absence of this, the mortgage lender may allege that the transfer of the property title of ownership violates the due on sale clause of the mortgage.
The mortgage balance on a property must be paid in full when it is sold, according to the mortgage agreement. Moving a property in your name to an LLC is regarded as a sale and this is an issue that many people encounter. However, you can obtain a waiver prior to transferring the property, and this is a strategy that has been known to be quite effective.
Conclusion
Selling a home through an LLC does have its fair share of due process. If you are evaluating upsides and downsides, the upsides significantly outweigh the downsides. In addition to all the potential savings along the way thanks to tax benefits, opting for CA Flat Fee guarantees a seamless sale.
