Should I start an LLC in order to sell an inherited family residence?
My father recently passed. I am the sole heir and will own the property outright. I expect to obtain a mortgage on the property for less than 80% of appraisal of which 10% will be needed to put the home in a sellable condition. Would it be worth starting an LLC or some kind of business vehicle to achieve the most profit?
Let’s start at the beginning. My condolences for the death of your dad. Now that he has died, you will inherit outright his residence. With this as a starting point, I’m hoping you have the assistance of a competent financial advisor or probate attorney. At the time of your dad’s death the Internal Revenue Code allows you to re-value your father’s residence and any other assets he owns as of the value on the date of his death. In other words, if he paid $40,000 for his house and it is now worth $250,000, the value for estate tax purposes is $250,000. You as the beneficiary will inherit the property using the $250,000 as your cost basis if you decide to sell. Therefore, assuming you have a date of death appraisal from a legitimate appraiser, this will be your basis for selling the property. There is absolutely no reason or logic for creating an LLC to increase your profit. The profit itself should be pretty minimal knowing that all the capital gains to the date of your dad’s death are forgiven under what is called the “step-up in basis,” rules. Please take the time to review these rules so you don’t waste a lot of money on unnecessary business setups that will never assist you. I hope this helps and good luck.
The purpose of a limited liability company would be to "limit," your liability. The question would be, what ways could you do this more cheaply or more efficiently?
1.Homeowner's policy. If you have a mortgage, the lender will require this and probably will suffice.
2. Personal liability policy. Sometimes referred to as an "umbrella," policy, this will kick in for any amount past what your primary homeowner's policy would cover.
I question the notion of creating an LLC to "make the most profit," in this instance. It is likely that your basis will be "stepped up," to current market value (by virtue of the inheritance) and as long as you live in the house for two out of the next five years, the first $250,000 of profit will be exempt from taxes. (see IRS link)
I hope this helps.