Transferring a personal vehicle, just like a property, to an LLC can limit your personal liability if someone is injured on the property and files a lawsuit against the owner. For instance, if the parking brake fails and results in the vehicle rolling down a hill and striking another vehicle, as an individual owner, the accident could be financially devastating.
However, if the vehicle is under the ownership of an LLC, any lawsuit would have the same limitations as legal action against a corporation, meaning your personal assets are protected as long as the LLC is properly formed and structured.
Limited liability companies, known as LLCs, are legal entities established through state business agencies and, in most cases, registered with the Internal Revenue Service for tax purposes. Even though each state has specific rules for LLC organizations, all states recognize limited liability companies as separate and distinct legal entities with full property ownership rights.
Have it in mind that these entities may buy, sell and retain private property like vehicles as well as real and intellectual property.
You can also sell or contribute property to your LLC. However, once you transfer a vehicle to your LLC, ensure that all necessary changes in ownership are submitted to the correct agencies and authorities such as your state’s department of motor vehicles.
In the United States, it is pertinent that you carefully record your original purchase price, the fair market value, and any depreciation. Bargain sales at lower than fair market value are common, but there can be long-term tax implications related to depreciation.
Though state regulations may vary, the IRS has no regulation prohibiting a business owner from selling her own personal vehicle to a business that she owns.
According to IRS publication 583, vehicle-related tax deductions based on actual expenses or a standard mileage rate are allowed by vehicle owners. Therefore, a business owner may deduct only those expenses or miles related to business purposes regardless of ownership.
Also note that business owners who choose to sell their personal vehicles to their business to protect the vehicle during a personal bankruptcy must do so a year prior to filing. Business owners who transfer ownership of their vehicle to their LLC may notice an increase in insurance premiums, registration taxes, and other vehicle-related expenses.
Steps to Transfer a Private Personal Vehicle to an LLC
In a limited liability company, personal assets are no longer subject to business liabilities and business assets cannot be seized in the event of personal bankruptcy. Howbeit, a private personal vehicle used for business purposes can be transferred into the LLC with the following steps.
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1. Establish the LLC
Start by establishing an LLC according to your state’s laws. In most states, the website for the state agency that regulates businesses, often the Secretary of State explains how to do this. You will have to file articles of organization with the state’s business filing agency and pay a fee.
Also note that some states require you to publish a newspaper notice stating that you intend to form an LLC. You can file this paperwork on your own or seek assistance from an online legal service provider. It’s also a good idea to prepare an operating agreement that describes how you will run your business.
2. Talk to Your Insurance Agent
At this point you will have to talk to your insurance agent and discuss the insurance ramifications of transferring the car to the LLC. Most times, the business costs will go up as insurance companies equate business usage with higher liabilities compared to personal usage.
However, if the insurance premiums make transferring the car cost-prohibitive, you may choose to keep the car in your personal property but have the LLC place a “friendly lien” on the title.
Note that this friendly lien is a contract that instigates that the asset is given loan terms by the LLC to the owner with no payments required until demanded by the LLC. Friendly lien samples can be found through the Small Business Association, local Chamber of Commerce website, or through online legal forms providers.
3. Contact Your Lender
If you have an outstanding loan on the vehicle, now will be the time to contact your lender. They have to give permission for you to transfer the title, and they may want you to pay off your personal loan and negotiate a new one in the LLC’s name.
4. Prepare a Title Transfer Form
You will also have to prepare a bill of sale transferring the vehicle’s ownership to the LLC. A bill of sale is a document used to record a property sale that contains the transaction details. The seller usually prepares it. You will also have the LLC apply to the state department of motor vehicles (DMV) or county treasurer for a new certificate of title.
An LLC can only act through its owners, called members, or managers, so if you are a member or manager, you can handle the necessary paperwork on its behalf. Also, remember to check with the DMV about whether you must take additional steps to register the vehicle in the LLC’s name.
5. Submit the Title Transfer
Lastly, submit the title transfer to the DMV. Show proper proof of insurance and pay any transfer fee for the title change. As the vehicle’s purchaser, the LLC may have to pay a state sale and use tax on the purchase. Your state comptroller’s office or DMV can provide that information.
As a legal entity, an LLC can indeed purchase a vehicle from a dealership or other third party. In that case, the financing, registration, and insurance should all be done in the LLC’s name.
If you use your vehicle for business, the major benefit of transferring its ownership to the LLC is protection from liability if the vehicle is ever involved in an accident that results in a lawsuit. In addition, the LLC itself is entitled to a tax deduction for its use of the vehicle.
The deduction can be based on a standard mileage rate set by the Internal Revenue Service or on the actual expenses incurred in using the vehicle, including gas, maintenance, registration fees, parking, and tolls.