Rental vacation property in an entity for liability protection?
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Anonymous
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Curious whether or not people have their vacation home that they periodically rent in an entity (SMLLC, LLC, etc)? We are renting our second home for the first time this summer and I think I’d like to transfer the property into an LLC to keep any issues away from my personal assets.
Thx |
Anonymous
Just off the top of my head 
Placing a rental property into an LLC (Limited Liability Company) is a common strategy for asset protection, and there are several reasons why this might be beneficial: Liability Protection: One of the primary advantages of an LLC is that it provides limited liability protection to its owners. This means that if there is a lawsuit related to the property, such as a tenant getting injured on the property, the LLC is the legal entity that would be sued, not the individual owners. This helps to protect your personal assets (like your home, car, and personal savings) from being subject to any judgment. Separation of Assets: By placing a rental property in an LLC, you can separate this property from your other personal and business assets. This separation can simplify accounting and taxes and provides a clear distinction between personal and business assets, which can be advantageous in legal situations. Estate Planning and Management: An LLC can simplify the transfer of ownership stakes without the need for complex legal procedures. It allows for easier management and division of assets among multiple owners or heirs, which can be particularly useful in estate planning. Tax Benefits: While LLCs themselves do not typically provide direct tax benefits (since they often have pass-through taxation where the income is taxed on the individual owner's tax returns), they can offer flexibility in how you manage financial aspects like deductions and losses. |
Anonymous
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Thx, op. I’m actually an attorney who focuses on tax so I’m aware of the legal benefits and obligations that result from the transfer.
My question is a survey of how many people actually do this. None of my family/friends actually do. I asked my realtor and they said it was rare. So it’s sort of a risk/benefit question. |
Anonymous
It is not "rare" We do this. Our friends do as well. PP above has great advice. |
Anonymous
We have an LLC specifically for that purpose. Bought a condo, rented it out (only to friends for 5 year, but never knew if it would be non-friends) and put it into an LLC. Just seemed like only smart way to do it. Even with friends, it protects us from someone (anyone on property) suing us directly. Especially since it's easy to figure out we have $$$ and would be worth suing. So just an added layer of protection I cannot imagine renting to strangers and not doing that. |
Anonymous
| Do you have to have the mortgage paid off to place the 2nd home in an LLC? Would the lender object or require you to refinance the house in order to re-title it? |
Anonymous
Op - the home is paid off. So it would simply require the legal set up, EIN #, and transfer the deed. Thanks for the replies all. I will go forward and set it up. |
Anonymous
| The recommendation I got from a lawyer and financial advisor separately was to place in LLC. That is what we are doing w our vacation home. |