Creating an LLC would limit owner’s liability
Dear Mr. Feichthaler: I have two rental properties in Cape Coral that are in my individual name. I have been advised I should form a Limited Liability Company and put each house in the LLC. I am concerned about paying documentary stamps on the value of the properties, which are about $500,000 in total. Is there a way to avoid paying these taxes?
-Doug S.
Dear Doug: Many of my clients set up companies, either S Corporations or LLC’s, to hold their properties. I do advise my clients to always have adequate insurance on their rental properties to cover any potential liability. However, if any liability exceeded that insurance, the most a judgment creditor could seek would be the value of the LLC. A creditor would not be able to go beyond the LLC to seek your personal assets, generally speaking.
The good news is Florida recognizes that, when one contributes a property to a wholly-owned LLC or corporation, there really is no change in beneficial ownership. Documentary stamps apply to most real estate transactions at 70 cents per hundred dollars in value. If you sold these properties, or transferred them to a non-wholly owned entity, you would be required to pay $3,500 to the state of Florida. In your case, no documentary stamps would be payable. Also, you may want to consider having a separate LLC for each house, which could further limit your liability.
To all my friends and readers in Cape Coral and beyond, I wish you a Merry Christmas and a healthy New Year.
Eric P. Feichthaler has lived in Cape Coral for 28 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through his chairmanship of the Harney Point Kiwanis Club KidsFest, which provides a free day of fun and learning to thousands of Cape Coral families, and funds numerous scholarships. He has been married to his wife, Mary, for 14 years, and they have four children together. Recently, he earned his board certification in Real Estate Law from the Florida Bar. He is also a Supreme Court Certified Circuit Civil Mediator.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.