How to Transfer a Property to an LLC

If you own property and want to include it in your business operation, you can transfer it into your underlying limited liability company (LLC) entity. Doing so will increase the asset balance in your LLC and will provide you with liability protection around your property.

Placing property in an LLC is a common decision for new business owners, landlords, and real estate investors to make. The process is relatively simple to complete. Generally, the property transfer will need to be well-documented and the tax consequences of the transaction should be considered in advance. Engaging with a tax accountant or attorney may be prudent before deciding on your property transfer. With a real estate transfer, you may be liable for a transfer tax.

There are two main benefits to transferring property to an LLC:

• To capitalize your business – Property assets may help your business launch. Owners often make contributions of cash, personal property, or real estate in exchange for equity in the business.
• For liability protection over your real estate investment – The LLC entity can shield the property owner’s other personal assets from any potential legal complications involving the property.

Read on to see a simple summary of the steps you will need to take in order to transfer property to an LLC, whether it’s real estate or other kinds of property such as cash, equipment, or vehicles.

How to Transfer Real Estate to an LLC

Transferring real estate to an LLC will require the most significant amount of thought and documentation given their higher valuation than most other types of property. Here are the general steps you should take as the property owner looking to transfer a real estate asset into your LLC entity.

1. Contact Your Lender

First, you will need to contact your lender with your intent to transfer the property. There are a number of factors to consider with your lender relationship and the transfer process.

Through discussion and negotiation with your lender, they may allow you to transfer the property’s title from yourself to your LLC, as long you remain fully obligated to pay the mortgage. Payments will need to continue to be serviced by you in a timely manner, same as before, even after the title is transferred to the LLC.

Some mortgages may have a “due-on-sale” clause which requires all of the mortgage amount to be paid upon the transfer of the property’s ownership to a new person or entity.

A lender may require refinancing on the property with the LLC as the borrower. A lender may also require you to sign a personal guarantee in the case that your LLC cannot pay the mortgage, depending on the income and credit history in the business thus far.

In general, you should understand the details of your lender’s requirements for real estate transfers before engaging in this process.

2. Obtain Deed Form

Next, after fulfilling your lender’s requirements, you will need a deed form in order to begin the real estate property transfer to your LLC.

Deed forms can be obtained from your county recorder’s office or via online resources such as eforms.com, LegalZoom or Deeds.com. An attorney can also prepare a deed form for you. Deed requirements differ for each state in the U.S., so specific research based on your location may be required.

There are two main types of deed forms:

1. Warranty Deed
2. Quitclaim Deed

A warranty deed provides the most protection as its legal standing clarifies any confusion over ownership of the property by outright claiming there are no other owners. Specifically, it “pledges or warrants that the owner owns the property free and clear of any outstanding liens, mortgages, or other encumbrances against it.”

The warranty deed poses greater risk to the person transferring a property through it because they make themselves responsible for a breach of any warranties and guarantees, even if the breach occurred without their knowledge or during a period when the grantor did not own the property. Alternatively, it also presents a more secure, more attractive form of transaction for buyers or grantees in property transfers.

A quitclaim deed, on the other hand, can transfer a person’s interest in the property without the protections provided in the warranty deed. With a quitclaim, the nature of the transferring person’s interest or rights are not defined and no legal warranties are provided. A quitclaim deed “neither states nor guarantees that the person relinquishing their claim to the property had valid ownership, but it does prevent that person (the grantor) from later claiming they have an interest in the property.”

Generally, warranty deeds – due to their higher legal protections – are utilized when a property transfer takes place between unrelated parties. Quitclaim deeds are used more with related parties or transfers between family members or business partners, where more trust is already established.

For the transfer of your property into the LLC, the choice of deed is up to you and your individual circumstances. Additional research or consultation with an accountant or attorney may be useful to help you decide.

3. Fill out the Warranty or Quitclaim Deed Form

In a property transfer from yourself to your LLC, in legal terms, you will be the grantor and the LLC will be the grantee. In effect, you are the current holder of the deed (the “grant”) being transferred and your LLC is the new recipient of the deed.

When you fill out your chosen deed form to transfer the real estate property to your LLC, you should make sure that your name and the full legal name of your LLC are absolutely correct.

On the form, you may be asked to specify the purchase price or “consideration” being paid as part of the property transfer. If there is no money being exchanged in the transfer then you should consult with an attorney, your county recorder, or your state laws to find out the minimum consideration required for the transfer of a deed to be completed. If the property is being exchanged for an ownership equity amount or percentage in the business, then that will need to be specified in the documentation.

4. Sign the Deed to Transfer Property to the LLC

As grantor, you will sign the deed to transfer the property to your LLC. Your state may require you to sign the deed for transfer in front of a notary or other witness. Additionally, your state may require someone from the grantee side of the transaction to sign the document as well, which could be your LLC’s registered agent or another relevant individual.

5. Record the Deed

Recording your deed establishes the property transfer into the state’s public record. You can record your deed by submitting it to the registrar or other relevant agency that handles real estate records in your county or city.

Contact your state’s officials to determine the exact process required for recording a deed in your region.

6. Change Your Lease

Depending on the nature of your property’s new arrangement with the LLC and any potential tenants paying rental payments, you may need to alter your lease’s details to reflect. You should also contact any tenants associated with your property to inform them of the changes.

For property rented out to others, you should alter your lease to say that the landlord is now the LLC and not you. Rental payments should be paid to the LLC and deposited into the LLC’s business bank account. This arrangement in documentation around your property and the flow of rental payments to an LLC account will help ensure your LLC protects you from being liable for any of the property’s future potential legal troubles.

LLC holding title over your property provides a degree of legal protection for the rest of your personal assets. However, to fully protect yourself from legal troubles related to your property, in addition to the LLC’s ownership, you may also need to obtain liability insurance related to your property. Contacting an attorney or insurance agent may be a good idea to gauge your level of legal protection after the title transfer process.

How to Transfer Other Property to an LLC

If you are transferring other property into your LLC, such as cash, equipment, or vehicles, you will need to ensure that these transactions are well-documented. While the process may not be as in-depth and time-consuming as transferring real estate property into an LLC, it still requires some work to complete.

To avoid any potential tax problems and keep your LLC’s accounting in proper form, you will need to document the transfer of your property into the business. There are a few main attributes you will want officially record for the assets being transferred, including:

• Fair market value
• Original purchase price
• Current depreciation balance (via a chosen depreciation method: straight line, declining balance, sum-of-the-years’ digits, units of production)

The current fair market value of the asset being transferred may require some research and estimation. Cash is easy as it is the most liquid asset – its fair market value is just its value.

For assets like equipment and vehicles, you will want to record their original purchase price, current estimated fair market value, and any depreciation the assets have accumulated over time in the LLC’s operating agreements. For a titled asset like a vehicle, you will need to make sure the title transfers properly, depending on whichever type of vehicle title you have on the asset. For the transfer of a vehicle loan, you’d need to obtain lender approval similar to in the real estate transaction.

If the company is buying the assets from you for cash, you will need to record the value of the transaction within your accounting records.

Transferring these other types of property into your business simply requires foresight and documentation in order to complete.

Why Transfer Property to an LLC? 

To review, the best reason to transfer property into your LLC is to protect you from legal liability surrounding said property. Keeping your business and personal assets separate, with separate records and ownerships, could make your tax filings more efficient at the end of the year. Additional capital value from the transferred property afforded to your business balance sheet may also help establish your new enterprise as it begins to develop a credit history.

Though there may be fees, additional paperwork, and even some tax payments as a result of the transfer, the decision to move property into your LLC could make running your business easier, and legally safer for you, at the end of the day.