Does It Matter How I Take Title?
How you take title to property can have a major impact on your finances and risk assumption. Among other things, it can affect your income taxes, your property taxes, how the property passes to your heirs, and your potential personal liability for claims arising from the property. Being informed is essential to avoiding losses and maximizing the many potential benefits.
If you are married
You can take title as community property, community property with right of survivorship, joint tenants, or in a trust. Depending on the circumstances, you may even be able to take title in your name alone as your separate property. It is rarely advisable to do this as joint tenants with your spouse, rather than as community property (with or without right of survivorship) because of a difference in income tax treatment on the death of the first spouse.
Taking title with someone other than your spouse
You can take title as joint tenants or tenants in common. There is a significant difference in how title passes when you die depending on whether title is held as joint tenants or tenants in common, so ensure that you understand the difference when you are making the decision.
Taking title in the name of an entity in which you own an interest
A limited liability company is the form of entity that is most often used to hold title to real property. There are significant tax disadvantages to holding title in a C-Corporation. S-Corporations and limited partnerships are other forms of entities that offer benefits similar to those of holding title in a limited liability company, so may be viable alternatives to holding title in a limited liability company. Lenders sometimes require you to hold title in a limited liability company formed specially to take title to the property that will be security for the loan.
If you are doing a Section 1031 tax-deferred exchange
It is crucial that you take title to your replacement property in the same way that you held title to your relinquished property—the exception being that you may take title to your replacement property in what is called a “disregarded entity”, which is most commonly a limited liability company wholly-owned by the taxpayer(s) in the same proportions as it/they owned the relinquished property.
In the next installment of this series on commercial real estate essentials we will discuss under what circumstances it is advisable to hold title in a limited liability entity regardless of your lender’s requirement.
To fully understand the legal implications of your unique situation, please contact Lisa Stalteri, shareholder and member of the real estate group at Hopkins & Carley, one of the most competent and prestigious law firms in the Bay Area. Lisa has over 25 years of experience in commercial real estate transactions, having counseled clients in all areas of commercial property including leasing, financing, construction, and acquisitions. Click here to contact her to discuss your specific needs, or email her directly at lstalteri@hopkinscarley.com.