You can put your house in an LLC and rent it to yourself, and the mechanics are straightforward: form the LLC, deed the property to it, sign a lease, and pay rent from your personal account to the LLC’s account. The harder question is whether you should. The arrangement can trigger your mortgage’s due-on-sale clause, cost you your homestead property tax exemption, force you to replace your insurance, and put your capital gains exclusion at risk if the LLC is structured wrong. For most primary residences, an umbrella policy delivers similar practical protection with far less friction.
How the Transfer Works
Start by forming the LLC. You file articles of organization with your state’s business filing agency and pay the filing fee. Once the entity exists, you transfer the property by executing a new deed that names the LLC as the owner. A quitclaim deed is the usual choice, because you aren’t selling to a stranger and don’t need the title warranties a warranty deed carries. Sign it, get it notarized, and record it with the county recorder where the property sits.
Some counties charge a real estate transfer tax on the recording. Many jurisdictions waive it when beneficial ownership doesn’t change, as when you deed the home to an LLC you wholly own, but the rules vary and some charge it anyway. Ask the county recorder before you file.
Federal gift tax is generally not a concern here. The IRS treats a single-member LLC as a disregarded entity, so deeding property to it isn’t a gift to a separate taxpayer.
The Mortgage Problem Most Homeowners Miss
If there’s a mortgage on the house, read the loan documents before you do anything else. Nearly every residential mortgage contains a due-on-sale clause, which lets the lender demand the full remaining balance if you transfer the property without consent.1Legal Information Institute. Due-on-Sale Clause Deeding your home to an LLC is a transfer of ownership, even when you’re the LLC’s only member.
The federal Garn-St Germain Act does shield certain transfers from acceleration: transfers to a spouse or children, transfers in divorce, transfers upon death, and transfers into a living trust where you remain the beneficiary, among others.2Office of the Law Revision Counsel. 12 US Code 1701j-3 – Preemption of Due-on-Sale Prohibitions LLC transfers are not on that list. So while moving a home into a revocable living trust is federally protected, moving it into an LLC is not.
If the lender calls the loan, you’re left choosing among paying it off, refinancing (often into a commercial loan at a higher rate), or deeding the property back to yourself. The safer path is to contact the lender in advance and ask for written consent. Some will agree, sometimes conditioned on your personal guarantee of the mortgage.
Insurance and Title Coverage After the Transfer
Your existing homeowner’s policy covers an owner-occupied residence. Once the LLC owns the house, the LLC is the landlord and you are the tenant, and that policy no longer fits the ownership. The LLC needs a landlord or commercial property policy to cover the building and provide liability protection. You then need a separate renter’s policy for your personal belongings, because the landlord policy won’t cover them.
Title insurance is usually simpler. The standard ALTA owner’s policy adopted in 2006 expanded the definition of “insured” to cover a grantee wholly owned by the named insured when the deed is delivered without consideration.3Land Title Association of Arizona. American Land Title Association Owner’s Policy Adopted 6-17-06 If your policy dates from 2006 or later, your coverage carries over to the LLC. If it’s older, contact the title insurer and ask to add the LLC as an insured before you record the deed.
Tax Consequences
Capital Gains Exclusion
When you sell a primary residence you’ve lived in for at least two of the prior five years, you can exclude up to $250,000 of gain from taxable income, or $500,000 if married filing jointly.4Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence On an appreciated home, losing that exclusion is a five- or six-figure mistake.
A single-member LLC that hasn’t elected corporate tax treatment is a disregarded entity, meaning the IRS treats you as owning the property directly.5Internal Revenue Service. Single Member Limited Liability Companies Federal regulations specifically preserve the Section 121 ownership test in that situation.6eCFR. 26 CFR 1.121-1 – Exclusion of Gain From Sale or Exchange of a Principal Residence So the exclusion survives, as long as you also meet the use requirement.
Structure the LLC differently and the exclusion disappears. A multi-member LLC is taxed as a partnership, and any LLC that elects corporate treatment is a separate taxpayer. Either way, the home becomes a business asset and the exclusion is gone. This matters for married couples: putting both spouses on the LLC turns it into a partnership and puts the exclusion at risk.
Homestead Exemption
Most states offer a homestead exemption that reduces property tax on an owner-occupied primary residence, and most limit it to natural persons who own and occupy the home. When an LLC holds title, the owner is an entity, not a person, and the exemption typically disappears. Depending on local rates and the size of your exemption, expect hundreds to thousands of dollars added to your annual property tax bill.
Rent Paid to Your Own LLC
If your LLC is a disregarded single-member entity, paying rent to it doesn’t create taxable rental income for the LLC, and it isn’t deductible for you either. You and the LLC are the same taxpayer for federal purposes, so the money moving between accounts isn’t a taxable event.5Internal Revenue Service. Single Member Limited Liability Companies
That doesn’t mean you can skip the lease and the rent payments. You need them for state-law asset protection, even if they don’t change the federal tax picture. In a multi-member LLC or one taxed as a corporation, the rent is a real taxable event: the LLC reports it as income, and you can’t deduct it because it’s a personal living expense.7Internal Revenue Service. Topic No. 414, Rental Income and Expenses
Keeping the Liability Shield Intact
The whole point of the arrangement is the LLC’s liability protection. That protection only holds if the LLC operates as a genuinely separate entity. If a court finds the LLC is just your alter ego, it can pierce the corporate veil and reach your personal assets anyway.8Legal Information Institute. Piercing the Corporate Veil This is where the plan most often falls apart.
At a minimum, you need:
- A written lease naming the LLC as landlord and you as tenant, with a fixed term and rent set at fair market value. Below-market rent is one of the quickest ways to invite a court to disregard the whole setup.
- A separate bank account for the LLC. Rent flows from your personal account to the LLC’s account every month. Property expenses come out of the LLC account, and personal expenses never do.
- State compliance filings. Most states require annual or biennial reports and fees. Miss them and the LLC can be administratively dissolved, wiping out the protection entirely.
- An operating agreement, even for a single-member LLC, documenting how the entity is governed.
All of this has ongoing costs: state filing fees, a registered agent where required, commercial insurance premiums, and your own time. They recur every year you hold the property in the LLC.
What an LLC Actually Protects Against
An LLC provides inside-out protection. If someone is injured on the property and sues the LLC, only assets inside the LLC are exposed, not your personal savings, investments, or other property. That is genuinely useful for rental property, where tenant injuries and property-related suits are a real risk.
The protection doesn’t run the other way. If you are personally sued over something unrelated to the house (a car accident, a business debt, a personal guarantee), creditors can pursue your membership interest in the LLC. In many states they’re limited to a charging order, which lets them collect distributions but not seize the property, but that’s not the total shield some promoters describe.
Then there’s the practical question: how much lawsuit risk does your primary residence actually generate? If only your family uses the property, the exposure is modest compared to a rental with tenants. A standard umbrella insurance policy, usually a few hundred dollars a year, often gives you more practical protection at a fraction of the cost and record-keeping burden. The LLC route tends to earn its keep only for homeowners with unusual liability exposure, significant home equity, or asset-protection goals an umbrella can’t reach.