Should You Buy A House Under An LLC?
A Limited Liability Company (LLC) is a business entity. It can have its own income and assets. By definition, it can purchase residential or commercial real estate for any purpose included in the company’s articles of incorporation. An LLC can qualify for a mortgage if its credit rating and debt ratio are approved.
LLCs can be good choices for investors because they combine a corporation’s limited liability characteristics with the operational workability and tax efficiency of a partnership. They shield investors from personal liability and protect assets while offering significant tax benefits. The key benefits of purchasing real estate under an LLC include:
• Tax Advantages
Adding real estate to an LLC portfolio can increase the company’s financial profile and add value to the business when purchased for the purposes of leasing to tenants. Some LLCs are created for the sole purpose of buying, leasing, and selling real property.
There can be a number of reasons why individuals wish to have their real estate transactions kept private. Celebrities and other high profile individuals commonly purchase real estate using LLCs to keep the general public from finding out where they live or how much they paid for the property they purchased.
Once a deed is recorded, it becomes public information. If an individual has your address, it is simply a matter of looking it up in the court records of the county in which the property is located. Not only can people find out how much you paid for your house, but they can also find out if there are liens against your property. Purchasing under an LLC makes it nearly impossible for strangers to get personal information by looking you up on telephone and name lookup websites.
Purchasing real estate under an LLC will help protect your assets in the event you are sued. For example, if your neighbor is injured while on your property and sues, the court could award them a judgment against you. If the property is owned by an LLC, your assets will be protected.
Limited liability has exceptions, however. According to Nolo.com, you could be held personally liable under the following conditions:
• You personally injure someone.
• The LLC defaults on a loan or debt you have personally guaranteed.
• You intentionally commit a fraudulent, reckless, or illegal act that harms the company or an individual.
• You don’t deposit the taxes you withheld from an employee’s paycheck.
• You intermingle your personal business with the LLC’s instead of treating the LLC as a completely separate entity.
Pass-through taxation allows businesses to avoid direct taxation. Investors report company profit and loss on their personal income tax returns. This generally results in lower tax rates and avoids double taxation.
Before setting up an LLC for the purpose of purchasing real property, you should consult experienced legal and tax professionals.