If you are considering buying a property and want to protect your current assets, the question ‘Can my LLC buy my house?’ is a very reasonable one. Let’s take a closer look at whether or not an LLC can buy your house. But first, let's look at what is an LLC, or limited liability company.
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What is a Limited Liability Company?
A limited liability company, or LLC for short, is a type of business entity. LLCs are a business structure allowed by government statutes. The IRS will treat an LLC as either a corporation, partnership, or and an owner's own single-member company, and LLCs do have tax benefits. The business owner or owners of an LLC are called the LLCs members. The main purposes of an LLC are:
- To reduce the liability protection
- Legally reduce taxable income or produce a tax benefit
Can my LLC buy my house?
You might have asked yourself, can I buy a house under an LLC? The short answer is yes.
An LLC offers many legal advantages to the owner. Most importantly, an LLC can provide protection for your personal assets. This is the primary reason that many consider buying a house with their LLC.
An LLC can buy a real property asset, including your home, in some cases. However, not all LLCs are able to buy real property.
You’ll need to ensure that your LLC’s articles of incorporation allow the entity to purchase real property assets. If the ability to buy real property assets is outlined in the articles of incorporation for an LLC, then the legal entity that is your LLC will be able to buy a house.
Can I create an LLC to buy my own house?
Yes. You can create an LLC to purchase your own house. In order to do so, you’ll need to ensure the article of incorporation allows for the LLC to buy real property assets.
If you want to create an LLC, then you’ll need to complete a paperwork process. Here are the steps you'll need to take:
- Pick the state to form your LLC within. Different states have different filing requirements.
- Pick a name. You’ll need to choose a name for your LLC.
- Pick a Registered Agent. A Registered Agent is assigned to handle the legal responsibilities of managing the LLC.
- Draft articles of incorporation. The articles of incorporation outline what the LLC is able to do.
- File in your state. You’ll need to file with your state’s appropriate department to create the LLC.
- File for an EIN. An EIN, Employer Identification Number, is a key number issued by the IRS for tax purposes.
- Set up a business bank account. The LLC should have separate bank accounts from your personal accounts to handle the financial responsibilities of the business.
Depending on your state, you may run into additional requirements. If you are unsure about the process, consider talking to a legal professional to streamline the process. Additionally, discussing your tax obligations in relation to the LLC with a CPA could be a good idea.
Should I buy my house through an LLC?
Although you can create an LLC with the specific intention of purchasing a home, it may or may not be the right move. Here are some of the advantages and disadvantages to be aware of.
What are the Advantages of buying my house through an LLC
The major benefit of buying a home through an LLC is the asset protection an LLC can provide. The idea is that if someone ever sued for an incident that happened on the property, they would have to sue the LLC. With that, the lawsuit wouldn’t touch your other personal assets. Instead, it could only affect the assets held by the LLC itself.
Although the biggest advantage is to provide legal protection for your assets, buying a home through an LLC can provide other benefits. A few include shrouding your address from the prying eyes combing through public records.
Disadvantages of buying my house through an LLC
As with most financial decisions, there are some drawbacks to purchasing your home through an LLC.
The most notable include that you could lose access to tax protections of homesteading and miss out on attractive owner financing options.
First, losing your tax protections as a homestead can lead to more dramatic consequences in different parts of the country. Depending on where you live, losing this tax protection could cost you thousands each year.
Second, losing out on attractive owner financing opportunities could limit your homeownership options. A few of the most attractive home loans include the VA, FHA, and USDA loans. However, you’ll need to move forward as an individual to access these low-down payment options. Additionally, individual homeowners may have access to better interest rates which could cost thousands over the lifetime of the loan.
Another factor to consider is the management costs of running an LLC. Unfortatuenly, the administrative costs of running an LLC can add up quickly. Depending on your home state, you might face hundreds of dollars in filing fees each year. All of these additional costs will eat into your budget.
Finally, the protection offered by an LLC owning your home may not be a flawless plan to protect your home. In fact, creditors could seize an LLC in certain situations which would effectively eliminate any protections you hoped to gain from buying a home through an LLC.
In the end, it comes down to your goals. You’ll have to decide for yourself if the pros outweigh the cons.
Why would an LLC buy a house?
An LLC may be the appropriate option in certain circumstances. In general, this strategy makes more sense for real estate investors to use for their investment property.
With rental properties tucked into an LLC, there are some liability protections for your personal assets. However, there are also some additional business costs to keep in mind. The costs of maintaining the LLC could cut into your profits.
You’ll have to decide how much the protection of an LLC is worth to you. Another option is to purchase a robust umbrella insurance policy to protect yourself in the event of a lawsuit surrounding a rental property.
Can I sell my house to my LLC?
What if you already own a house or property. Can you sell your house to an LLC? Yes you can, but this could create taxable income and possible capital gains tax. The better option is to transfer an existing home or investment property you own to an LLC via a Quit Claim deed.
The bottom line
Can my LLC buy a house? Although the answer is yes, it may not be the best option for your financial future. Want to learn more about the ins and outs of real estate investing? Take a look at our comprehensive guide to investing in real estate as a beginner.
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