Holding a property in an LLC
Mr. Feichthaler:
I recently purchased a house in Cape Coral that I intend to rent out. I want to hold the property in an LLC to provide separation from my other personal assets. Is this expensive to accomplish?
– Larry S.
Dear Larry:
Many of my clients hold their rental properties in separate corporate entities, like LLCs. In some cases, clients hold each property in a separate entity, to further provide asset protection. A potential significant cost to be aware of is documentary stamps tax. This is a cost paid to the state on the transfer of real estate, based on the price paid (or, “consideration”). In your case, you wouldn’t charge yourself full price for the transfer. So long as the LLC has the same exact owners as the property, it can generally be transferred without the documentary stamps tax being paid, at a level of 70 cents per $100 in value, since there is no transfer of beneficial ownership.
However, if there is an existing mortgage on the property, documentary stamps are required to be paid on the amount owing on the mortgage, even if the new entity does not take assignment of the note. The Florida Statutes clearly define “consideration” to include transfer of property with existing debt. If you had a $200,000 mortgage on the property, $1,400 would be payable on the transfer.
You will also need to pay an attorney to prepare a deed and other documents to make the transfer, and you will also need to form a limited liability company, if you have not already. There are specific steps to be taken to ensure the LLC is considered a separate entity from your personal assets, so talk to your legal professional about how to best protect yourself before proceeding.
Eric P. Feichthaler has lived in Cape Coral for over 30 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 the Cape Coral Caring Center, Cape Coral Historical Museum, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 18 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator.
Mr. Feichthaler can be reached at eric@capecoralattorney.com, or (239) 542-4733.
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.