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GA Resident Seeking Advice on Transferring Rental Properties to LLCs or Trusts then LLCs

Forum|Forum|3 years ago
November 17, 2022
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GA resident thinking to create LLCs for three rental properties in GA and wants to know the tax implications for the rental properties when they are created and how the below scenarios may affect taxes.

The two different scenarios include:

Create three LLCs for the rental properties as single member without a trust.
Create a trust and then a LLC for each of the three rental properties.

Best answer by Anonymous_

If the trusts are grantor trusts, then there are no tax implications as they are treated as disregarded entities for federal income tax purposes.

If the LLCs are single-member LLCs (without an election to be treated as corporations), then there are no tax implications as they are treated as disregarded entities for federal income tax purposes.

A

Anonymous_Answer

Employee

If the trusts are grantor trusts, then there are no tax implications as they are treated as disregarded entities for federal income tax purposes.

If the LLCs are single-member LLCs (without an election to be treated as corporations), then there are no tax implications as they are treated as disregarded entities for federal income tax purposes.

T

TH411Author

Thank you. So they will continue to file a SCH E (and any relevant forms, such as the 8582), the same as if LLCs or trusts were not created and the properties were not transferred to either a LLC or trust then a LLC? Will the only taxes be at the time of transfer, if applicable based on GA state law for transfers of rental property to a LLC or trusts? If taxes are to be paid with the transfer - are those payments deductible?

A

Anonymous_

Employee

@TH411 wrote:

So they will continue to file a SCH E (and any relevant forms, such as the 8582)....

Who is "they"?

Also, I am not familiar with GA law in terms of income (or other) taxation, but there are income taxes and also transfer taxes (typically imposed at the county level) with respect to real estate. Thus, we need to be specific as to which type of taxes you are referring.

Carl11_2

Employee

I am not knowledgeable at all on trusts.

Transferring properties to a single member LLC changes nothing for tax reporting. All rental income/expenses still gets reported on SCH E as a part of your personal 1040 tax return. Nothing concerning the rental is reported on SCH C.

Transferring properties to a multi-member LLC also changes nothing tax-wise. The multi-member LLC will issue each member a K-1 which gets entered on the personal 1040 tax return. The information ends up on page 2 of the SCH E as a part of the owner's personal 1040 tax return.

Some possible issues with transferring property ownership.

1. If mortgaged, the mortgage lender typically will not allow it. You would have to "sell" it, or refinance it to the LLC and pay all applicable closing and other costs associated with that.

2. Property insurance could be an issue, as liabilities may (or may not) be different for a disregarded entity.

Since I know GA taxes personal income, you would be highly advised to seek the services of a professional well versed in "ALL" legal aspects of this; especially on the tax front.

T

TH411Author

Thank you for the information and for confirming that nothing will change regarding form requirements for Federal tax purposes. I will look more into the GA state tax laws.