If you’re starting an LLC, the business entity formation process is one of the first and most important hurdles. This step can be terribly complex ...
Can I Live in a House Owned by My LLC?
Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on November 9, 2021
Updated on October 2, 2023
If you have a limited liability company (LLC), you may wonder if your LLC can own your home. An LLC is a business entity that has its own rights, and buying and owning real estate are indeed among them. So the answer is yes, you can in fact live in a house that is owned by your LLC — as long as your operating agreement allows it. But this begs the question: should your LLC own your home?
You may want your home to be part of your capital contribution to your LLC, making your assets business assets. Let’s look at the pros and cons of doing so.
What is an LLC?
An LLC is an increasingly popular business structure for startups, offering liability protection for the owners and greater flexibility than a corporation, particularly in terms of taxes. The LLC itself does not pay taxes. As a “pass-through” entity, income passes through the business to the owner or owners, who report the income on their personal tax returns.
Benefits of Owning Your Home Under Your LLC
There are several reasons you might want your LLC to own your home:
- Privacy. Public records of your property will show the LLC name, not yours. Your identity as the property owner, and the price you paid for it, will be concealed.
- Owning a property under an LLC can have tax benefits due to pass-through taxation.
- Property owned by the business increases the value of the business, which helps if you’re hoping for a business loan or investment.
- Limited liability. If you are sued in connection with home ownership, owning it under the LLC will protect it. For example, if someone is injured on your property and they sue, they will be suing the LLC rather than you personally.
Cons of Owning Your Home Under Your LLC
- You will not qualify for a homestead exemption on property taxes if your state has one. A homestead exemption can help shield a home from creditors in the case of the death of a spouse or bankruptcy. Laws and benefits of homestead exemptions vary from state to state.
- If you are just purchasing your home or need to refinance it, it will affect the type of financing you can get. Lenders may require a higher down payment and charge higher closing costs and interest rates.
- You will pay more taxes. For property and state taxes, you will not qualify for deductions that you would have if you owned the home personally.
- Your insurance will be higher because you will be considered a tenant of the LLC.
- You will lose the capital gains deduction due to the LLC’s ownership.
- If you have existing loans on the property, the transfer to your LLC could trigger the “due on sale” clause, which means you would immediately have to pay off the loan on the house.
The biggest drawback, however, involves the combining of your personal and business assets. If your business owns your home, in the event that the business is sued or dissolved, your home would be a business asset and thus at risk. In the case of dissolution, assets are divided between the owners after creditors are paid, so you could be forced to sell the house to divide the proceeds.
You could also face legal liability if you are not paying rent to the LLC, and other members take issue with that. It may be considered self-dealing, and a breach of fiduciary responsibility.
It might also just be confusing to mix business and personal assets when it comes to bank accounts, home payments, accounting, and other issues.
Get Professional Advice
It is highly recommended that you get the advice of an accountant and an attorney before you transfer your home to your LLC, particularly if your LLC has other members. These professionals will be able to give you valuable advice about the advantages and potential liabilities based on your situation.
Can I Live in a House Owned by My LLC?
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