Should I Put My House in an LLC?

One tool we use regularly in estate planning and asset protection planning is the Limited Liability Company (LLC). LLCs are highly flexible and customizable business entities that hold many benefits for owners (referred to as Members). Some of the benefits of LLCs include:

• Asset protection;

• Ease of gifting;

• Opportunities to claim discounted values;

• Avoiding the fractionalization of title to real estate; and

• Maintaining control even as you are divesting ownership.

Understanding these benefits, I often get the question: “Should I put my house in an LLC?” While it can be done, there are many reasons why it should not. First, an LLC should have a “business purpose.” An LLC that solely holds a personal residence would not have a business purpose. Beyond this, most states offer a discounted property tax rate for a personal residence. This may be lost if the home is owned by a business entity. Additionally, special income tax rules apply to the sale of a personal residence. Currently, the Internal Revenue Code allows a single person to have up to $250,000 in gain ($500,000 for a married couple) before any taxes would be owed on the sale of a personal residence. This may be lost if the home is now held in an LLC. Most states provide for some form of Homeowner’s Exemption from the claims of creditors. This could also be lost if the home is now in the LLC. For these reasons and others, we generally advise against having the home in an LLC and using other asset protection techniques instead.