Full question:
I am considering purchasing a resort condominium in Galveston, Texas for daily/weekly rentals. I have been advised to set up an LLC. I am the only member. I have a pre-approval letter from BOA for the loan in my personal name. The attorney I have said I should get BOA to title it in the LLC name. BOA said they don't do that. I would have to close on the loan personally and if I wanted to, a few days later I could transfer the title to the LLC. I have a few questions. What kind of deed should I use for this transfer? Are there any tax consequences from this transfer? Will I have to buy title insurance twice??
- Category: LLC
- Date:
- State: Texas
Answer:
We cannot give legal advice. The following is not a substitute for the advice of a local attorney. But we hope the information will be useful.
BoA's position is not surprising. A primary purpose of an LLC is to shield the owner (you) from liability for the debts of the LLC. If BoA loaned money to the LLC, the LLC could default on the loan, and BoA could only go after the assets of the LLC (and not your personal assets). BoA doesn't want to be in that situation, so they will only loan the money to you, personally.
A simple quit-claim deed is probably sufficient to transfer ownership to the LLC.
Another key purpose of an LLC is to avoid the "double taxation" inflicted upon traditional Corporations and their owners. Typically, money earned by an LLC isn't taxed as income except as personal income tax of the owners (members) when it is drawn from the LLC as income. The LLC itself is not a taxable entity (unlike a 'C' corporation, whose profits are taxed). More detailed issues arise from the transfer of property that only a tax specialist can answer. We are not tax specialists. A tax attorney or accountant should be contacted on those issues.
It is unclear as to whether "you" (you, then the LLC) will have to buy title insurance ("twice"). However you might be able to avoid the issue altogether by leasing, rather than selling, the building to the LLC. Leasing might also simplify the tax situation. Again, a question for a tax specialist.
These suggestions should be run by your local attorney.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
