Friday, March 21, 2008

query via e-mail: Could you discuss this on one of your blogs? I keep having sellers calling and asking about putting their property into an LLC and

then selling the LLC in order to avoid the transfer taxes.

Morning. I'm very happy to talk about it but I need to understand it more. Are you saying they want to deed property into a LLC then sell the LLC? It seems to me that the transfer into the LLC would be taxable even if the sale of the LLC itself is not.

This is an interesting topic and I welcome comments. Anybody game?

8 comments:

Anonymous said...

Hmmmm...well I'm sure not an attorney or a tax professional BUT from my experience "fancy footwork deeding" or Deeding from one individual to another to avoid something or one entity to another to avoid something...is....um...probably not wise and may be illegal.

marchayes said...

In Florida, this is a known legimate method of avoiding or reducing documentary stamp taxes as the sale of the LLC membership interest is not deed-stamp taxable. If the property is free & clear, there is also no tax on the initial transfer into the LLC. If the property is encumbered, the tax would be based uon the mortage amount, not the sales price.

Diane Cipa said...

Blogger must be acting up today. Here's a comment from Judy that I received via e-mail:

I turned down a settlement where the parties were trying that. I've since attended a C.E. class where it went up for discussion and other agents thought it would have been alright. The seller put the property into the buyer’s LLC with a zero consideration deed. Then the buyer did a MTG and paid the seller. I didn't see how to write owners ins. since the policy limit is the deed amount and there was no deed. I've had a R.E. agent call and ask about this for a seller also. I don't see how he will get any commission for the sale of real estate if there is no real estate settlement!!??

Diane Cipa said...

Judy: Two things. I don't know about your market but in my neck of the woods, the seller couldn't do a transfer for no consideration. We'd have to charge transfer taxes base on market value. As for the owner coverage, we can insure based on market value, too.

Anonymous said...

I still don't understand. How does the policy read . . ."by virtue of a deed recorded in the land records etc. when there is no transfer of real property by deed. Also yes the seller did record a 0 consideration deed into the buyers LLC.
I don't want to lose business if this catches on, but I don't want to do something wrong either.

Diane Cipa said...

Taking the direction of Judy's transaction, the seller conveyed into the LLC. The deed from the seller into the LLC is the vesting info for the policy. The LLC is the insured in the owner policy. If they transfer for no consideration, deed tranfer taxes are based on market value and the premium is based upon market value. We base market value on a current appraisal or absent an appraisal, the assessment multiplied by a county common level ratio factor. That's how we would do it in PA.

Anonymous said...

The underwriter with the big bird emblem told me to walk away from it. I'm new to this blog business. My comments don't seem to post unless I click on anonymous. Anyway, so maybe I lost business for no good reason

Diane Cipa said...

Hmmm...if you don't have a Google account, I would create one, then sign in. I like Google anyway. They have lots of easy to use tools.