Are you thinking about investing in Pennsylvania real estate? If so, forming a Pennsylvania limited liability company (LLC) has numerous benefits that will save you time and money in the future.
Here are the top five reasons why the LLC has become the entity of choice for investment real estate ownership in Pennsylvania:
- Realty transfer tax implications and timing
If you plan on owning real estate in an LLC, timing is critical to avoid paying Pennsylvania’s realty transfer tax more than once. Realty transfer tax in Pennsylvania is 2% of the value of the real estate.
You should form the LLC prior to signing the agreement of sale, and the party entering into the agreement of sale should be the LLC, not one or more of the individuals’ names. The reason for this is that Pennsylvania’s realty transfer tax law provides that a taxable event includes an assignment of an agreement of sale, which would trigger transfer tax twice.
Further, if you buy the real estate in your individual name and later wish to transfer the property into an LLC that is owned by you, you would also be required to pay realty transfer tax on that transfer.
Creating an LLC from the outset would avoid paying more tax than you are legally required to pay under the above two common scenarios.
- Limited liability protection for owners of the LLC
The owners (known as members) of an LLC enjoy limited liability for the debts and obligations of the LLC and the negligent acts of other members. A member’s liability is limited to the amount of his or her investment in the LLC, and their personal assets would be protected in the event causing liability.