Corey asks the following question:

A partner and I have an LLC with 50% ownership each. We both plan to transfer title via a Quick Claim Deed for both of our current homes to our LLC. We then plan to move out of these homes and rent them. We will then keep the new homes that we purchased in our own personal names. Both of the homes that we plan to put into the LLC have been lived in for more than 2 years. Is the transfer of our homes into the LLC a taxable event? Also is there anything else besides the Quick Claim Deed that needs to happen in order to fully transfer the new properties into the LLC and protect us from legal liability of our new rentals?

A: Like most tax questions, this one prompts another question. How is the LLC being taxed? If you are taxing it as a partnership (my recommendation), there probably is no tax consequence to tranferring the houses into the LLC. However, you may want this to be a taxable event. If it is a taxable event, then you will receive a basis in the property (for depreciation and subsequent sale purposes) equal to the fair market value of the property at the time of the transfer. And as long as the fair market value is not more than $250,000 greater than what you paid for the house, there should be no tax on the transaction. This is a tremendous benefit, but you need to make sure you handle the transaction properly. I recommend you sit down with your tax advisor to make sure you do this right.

There is another issue regarding this transaction and that is the use of a quit claim deed. You should speak to your title company about this. They may recommend that you use a warranty deed instead so you don't lose the benefit of your title insurance. Be sure you also speak to your regular insurance agent to make sure your houses maintain the appropriate coverage for property and casualty insurance purposes.

For more about this, visit our Tax Mastery section of Wealth Strategy U at http://www.ProVisionWealth.com/wealthu.

Warmest regards,

Tom