Corey asks the following question:
Q: Tom, I was wondering if there is a preference as far as tax strategy/legality with pulling the equity out of rental. The rental is currently a sole proprietorship and were are looking into transferring it to another entity(maybe LLC). Should you try to pull out the equity before the transfer or after?
A: As with most questions of this sort, the answer is "It Depends." In the case of a single family home rental, you probably want to pull the equity out prior to transfering it into an LLC or other entity. Banks typically do not like to lend to entities, but rather prefer to lend to individuals. So, you want the loans in place (including second mortgages) prior to contributing the property to your LLC. Be aware, though, that there are several details to attend to when transfering a property to an LLC to make sure that you keep in place the casualty insurance, the title insurance and to be sure you don't run afoul of the due on sale clause in the bank loan. Please contact your Tax Coach to go over all of these details as they apply to you. We also have this information in our ProVision educational course, "Getting the Most Tax Benefits From Real Estate," coming soon to http://www.ProVisionWealth.com/products.
Warmest regards,
Tom