Learn about the benefits and downsides of purchasing your Fort Lauderdale luxury home with a limited liability company (LLC).
LLC Defined
A limited liability company (LLC) is a business structure that protects its owners from personal responsibility for its debts or liabilities. An individual, group of individuals or entities can be a member of an LLC, with exceptions like banks and insurance companies. LLCs don’t pay taxes on their profits directly, rather profits and losses are passed through to members, who report them on their individual tax returns.
Benefits Of Buying A House With An LLC
1. Privacy
When you purchase a home in Florida, information about the transaction is included in a public record, including your name, address and purchase price. Many of our high-end property buyers prefer using an LLC because it allows them to replace their name and mailing address with that of the company, thus protecting their privacy.
2. Limited Liability
If an accident happens at a property not under an LLC, generally the homeowner’s insurance will cover the payments on a successful lawsuit up to the terms of the policy. Any remaining damages would then become your responsibility. Things like your investments, savings and home equity could be garnished to pay the balance.
When your home is in an LLC, the lawsuit can only name the LLC. Therefore, only assets held by the LLC can be used to pay the damages.
3. Tax Benefits
According to ROCKET Mortgage, “The LLC structure can offer significant tax benefits, particularly because it eliminates double taxation. Double taxation refers to profits taxed at the business level first and then a second time at the personal level. Instead, LLCs enjoy a pass-through tax structure, which means that the LLC pays taxes on profits, but the owner of the LLC does not. However, LLC owners must pay taxes on their allocated share of profits.”
Downsides Of Buying A House With An LLC
1. Cost
Setting up a Florida LLC involves filing articles of organization, which costs around $125. You can be your own registered agent for free or hire a service for around $100 to $300 annually. The State requires you to keep the information for your LLC up to date by filing an annual report, which costs about $140 per year.
2. Securing Financing
Residential lenders typically don’t like lending to LLCs because of the limited liability it offers. Also, you likely won’t be eligible for most types of residential loans, including FHA or conventional loans sold to Freddie Mac or Fannie May.
3. Capital Gains
Usually, home sellers do not have to pay capital gains tax on the first $250,000 of profit as a single individual or $500,000 as a married couple. However, when your home is in an LLC, you are responsible for the tax bill, regardless of how large or small your gain/profit is.
To learn more about LLCs, contact your attorney and tax professional. Together, you can decide if putting your Fort Lauderdale luxury home in a Florida LLC will be advantageous. When you need help buying or selling a luxurious home in Fort Lauderdale or the surrounding areas, contact us! We are your real estate experts.
