Is putting your home into an LLC a good idea?

For most of us, our most valuable possession is our home. We want to protect that asset above all costs from creditors, legal issues, etc… The use of an LLC can be beneficial for properties that are income producing. In fact, it is a very smart idea to hold income producing properties in separate LLCs. However, things are different when it comes to your home, and an LLC for your home is almost certainly a terrible idea.

If you place your home into an LLC, you essentially become the tenant. The LLC would have to make sure that it holds appropriate insurance adding to the cost of home ownership. Further still, your federal and state deductions will no longer be available to you.

The homestead exemption will also no longer be available. The homestead exemption protection up to $600,000 of equity in the home should you ever file for Chapter 7 or Chapter 13 bankruptcy. If you place your home into an LLC it is just an asset that can be taken to pay back creditors. 

Possibly the most significant consideration is that moving your home to an LLC will be seen as a change in ownership and trigger reassessment and taxes.   Also, a property in an LLC will affect your capital gains deduction.

Finally, if you have a mortgage on the property, a transfer to an LLC will likely make the loan due on the transfer. Meaning that as soon as you transfer to your LLC you will have to pay back the loan. There are work arounds to this, but you have to tread carefully and make sure you work with an attorney.

The above is just a taste of things that should very much lead you away from transferring your primary residence into an LLC.

If you have questions give us a call.

Sasik + Moon 310 490 6963