Buying a House with an LLC: Pros, Cons, and Steps

If you own a business, you have probably asked yourself, Can my business buy my house? At some point in your life. Yes, it is legal for your company to own property, including a home. However, the fact that you can doesn’t necessarily mean you should, as happens with anything in real estate.

There are important legal, financial, and logistical factors to consider when considering purchasing a new home in your company’s name or moving your personal focus to your LLC. This article will explain what buying a home using a company involves, why individuals do it, and the procedures you must follow.

What is an LLC?

The acronym stands for limited liability corporation. This kind of organizational structure allows people and particular groups to work together as one company. Members are the owners; a single owner may also exist, in which case the business is referred to as a single-member LLC. Members of a new LLC may be businesses, foreign organizations, individuals, or already-existing LLCs. There are plenty of federal and state laws pertaining to LLCs, and creating one necessitates meeting certain guidelines.

Can an LLC buy a house?

Certainly, using an LLC to buy a home is possible. However, why would you want to?

As the name indicates, an LLC has the benefit of limiting the members’ responsibility inside the business. According to Chris Collins, the founder of the Yugo Collins company in Roanoke, Virginia, “It means the LLC is a separate entity to the person [or people] who own the LLC.” “When trying to reduce your exposure to a lawsuit, this can be a huge advantage.”

Buying a home with an LLC is an excellent option for individuals and other groups who want to minimize their personal liability when they make real estate purchases. It may be particularly useful for owners who want to rent out their properties. According to lawyer Andrew L. Schwartz, partner at Stein Sperling in Rockville, Maryland, “the LLC, not individual members by name, should hold title to a property” in order to get the benefit. “The LLC should be identified as the landlord if the property is rented to tenants.”

According to Schwartz, the LLC’s distinct legal identity—which includes utilizing another bank account to pay off debts and having a different taxpayer identification number—is crucial.

Benefits of Buying Real Estate Through an LLC

These are the primary advantages of using a Limited Liability Company (LLC) to purchase real estate.

1. Safeguard from Liability
Limited liability is an important advantage of property ownership by an LLC. Your personal assets, like bank accounts, autos, and other valuables, typically are protected if someone is hurt on the property or files a lawsuit as a result of a disagreement.

2. Privacy:
LLCs can preserve property records’ anonymity. An LLC may protect your identity from public real estate databases if you don’t want your name to be publicly linked to the house.

3. Tax Adaptability
LLCs provide pass-through taxes, which avoid double taxation by allowing earnings and losses to pass through to your personal tax return. Also, you may be able to write off costs connected with your company, such as:

• Upkeep of the property
• Interest on mortgages
• Coverage
• Depreciation

Note: To ensure compliance and optimize benefits, constantly seek help from a tax adviser.

4. Planning for Estates and Ownership
Having assets in an LLC could make estate planning simpler. By giving LLC membership interests in place of retitling the property, you may transfer ownership, cut down on paperwork, and avoid probate.

5. Simplified Procedures
Selling the LLC that owns the property is often simpler than doing a complete property transfer if you own many properties or want to transfer or sell the property in the future.

Risks and Drawbacks of Buying Real Estate Through Your Company

With the advantages, there are some major drawbacks to take into account, especially if you’re considering moving to the house your company owns.

1. The First Is Mortgage Complications.
The majority of traditional lenders will not provide an LLC with a conventional mortgage, especially for a principal home. You may have to:

• Make cash payments.
• Apply for a commercial loan, which typically requires greater down payments, shorter periods, and higher interest rates.

2. No Tax Benefits for Primary Residences
Living in a house that you individually own allows you to:

• Deductions for mortgage interest
• Capital gains tax exemptions (up to $500,000 for married couples and $250,000 for single individuals)

Since the IRS does not regard the home as your personal dwelling, you forfeit those benefits if your company owns it.

3. Increased Insurance Costs
Commercial property insurance, which is more costly than standard homeowners insurance, may be required for properties owned by LLCs. The cost of insurance may increase further if you are renting out the house or using it for Airbnb.

4. Burden of Administration
Creating and running an LLC entails:

• Submitting documentation to the state
• Making annual fee payments
• Keeping separate accounting records

Annual tax and legal filings are also necessary, which increases complexity (and sometimes expense).

How to Purchase a Home Using an LLC: A Comprehensive Guide

Here’s how to carry out this method properly if you’ve decided it fits with your objectives:

1. Create an LLC
Select a name, get an Employer Identification Number (EIN) from the IRS, and then register it with your Secretary of State. This allows your LLC to legally own property, submit taxes, and create bank accounts.

2. Create a Bank Account for Your Business
All corporate funds should be kept separate from your personal accounts. Liability protection and paying taxes depend on.

3. Establish Business Credit (Selective)
Having business credit may help your LLC get funding, but it’s not necessary. Creating credit accounts in your LLC’s name and making responsible payments on them can help you achieve this.

4. Secure Funding
Both cash and a business mortgage are options for purchasing the house. Although the conditions are often greater, some lenders offer investment property loans created especially for LLCs.

5. Buy the property in the name of the LLC
Verify that the LLC is listed as the owner of the title, deed, and mortgage, if any, at closing. This is what formally establishes the company as the legitimate owner.

6. Preserve the LLC Appropriately
Maintain a separate accounting system, yearly reports, and tax filings. If you don’t, courts can ignore the LLC and hold you personally responsible, a situation known as “piercing the corporate veil.”

So, can my business buy my house? Of course. But should it? That depends.

Liability protection, tax flexibility, and privacy may be offered by an LLC if the property is used solely for investment or rental income. Using an LLC, however, may cause more problems than it fixes if you want to reside in the house, particularly when it comes to financing and tax benefits.

Before making any major financial choices, it is advisable to speak with a real estate lawyer, a qualified public accountant, and a lender who is familiar with business-owned properties.