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I am inquiring about an LLC-owned property that I am renting. I, along with my three brothers, are owners of the LLC.

My parents bought the house originally but then the LLC bought the property and house that the property is on.

Could anyone tell me if it is legal for my dad to charge me rent for the property that I am renting? Wouldn't any profit from my rent go to the LLC holders, myself included?

Would this differ in certain states or is it the same across the board?

Any help would be greatly appreciated.

closed as unclear what you're asking by mhoran_psprep, Nathan L, JoeTaxpayer Oct 31 '17 at 18:15

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    If you have an LLC with partners, then you probably pay an accountant a decent amount of money to prepare the taxes. I would ask him. The answer depends on a lot of things. – Pete B. Oct 30 '17 at 18:59
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    Trying to clarify the actual question here. The LLC is the owner and landlord. Who is the tenant? You or your dad? – Xalorous Oct 30 '17 at 21:22
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    Who are you renting the property from? Who is your agreement with? – David Schwartz Oct 30 '17 at 23:58
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    What does your dad have to do with the LLC exactly? – not_a_comcast_employee Oct 31 '17 at 1:15
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    Also, this question could benefit from being narrowed a bit. For example, it would be better to click edit and add your state than to ask people to explain this in all 50 states. – Paul Oct 31 '17 at 5:44
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Your dad isn't an owner, that is equivalent to any stranger down the street charging you rent for a house your company owns, unless he lives there.

If your dad lives there, then he is beholden to the tenant agreement with the landlord which is the LLC. If the LLC lets him charge rent, then he can charge it. The real question then becomes, why is he charging you. Do you live there too?

And finally, why are you guys doing things like this at all? You didn't explain anything relevant to the question. Do you need to live in the house? Does he need to live in the house. Why even act like it is an investment property if this is the primary home of your parents and one of the LLC owners? Why don't your parents just join the LLC alongside your brothers? Why not set up a trust instead? So many problems

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    You should remove the requests for clarification from the answer and post them as comments on the question. They don't belong here. – Mindwin Oct 31 '17 at 10:49
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    nah, they are useful things to think about, the question marks are more of a ... coincidence – CQM Oct 31 '17 at 14:57
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    There's a crucial question missing: What exactly were the terms when the ownership was transfered from parents to LLC? There may well be terms that make Dad someone very different from the stranger down the street. E.g. parents could have transferred ownership but kept usufruct for the rest of their life. – cbeleites Oct 31 '17 at 19:35
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Could anyone tell me if it is legal for my dad to charge me rent for the property that I am renting? Wouldn't any profit from my rent go to the LLC holders, myself included?

Would this differ in certain states or is it the same across the board?

Let's see if I understand correctly.

  • Your parents originally purchased the property
  • At the time you rented from them and lived there
  • Then, you and your three brothers purchased the house from your parents
  • You and your brothers now hold it via an LLC
  • The LLC isn't using your dad to collect the rent for them

If this is all true, then your parents no longer have any financial stake in the property. Any rent you pay should go to the LLC.

As far as "is it legal" you can simply tell you dad that you don't owe him rent. He could choose to take you to court and would lose, if my understanding is correct.

This has nothing to do with certain states. Your dad isn't the owner. The LLC would collect the rent.

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    The only situation I can think of where OP would still owe rent to Dad is: In case Dad rents the house from the LLC, he can sublet to OP. Then OP has to pay rent to Dad and Dad has to pay rent to LLC. – cbeleites Oct 30 '17 at 22:55
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    Whether or not the dad can sublet to the OP depends on the rental contract with the LLC, which is again entirely up to the OP and his brothers. – chepner Oct 31 '17 at 12:43
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    @chepner Contracts are up to two parties; the contract with the LLC can exist even if the owners of the LLC don't want such a contract. – Yakk Oct 31 '17 at 14:50
  • Yes, if somebody other than the three brothers negotiated the contract. – chepner Oct 31 '17 at 14:58
  • axsvl77's answer reminded me of a 2nd construction in addition to subletting (and one that fits better with the Dad + kid being (partial) owner + is asked to pay rent constellation): Dad keeping usufruct after transfering ownership – cbeleites Oct 31 '17 at 19:28
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Let me take a guess at the arrangement:

  1. Your Dad purchased the property.
  2. Your Dad, as he is getting old, didn't want his estate to pay taxes on his death, so he gave the property to the LLC which is in you and your brother's name. This way, you will get a larger inheritance.
  3. When he did this, he had a gentlemen's agreement with you guys that the property was his in reality, and yours legally. This way, when he dies, you won't pay estate taxes. This arrangement is fairly common.
  4. He is charging you rent based on the idea that the property is his in reality and yours only "legally". Probably this money is going toward maintenance of the property.

If I am right, then legally, you don't have to pay rent. However, if you didn't pay rent, you'd be going back on your agreement (#3) with him. Without getting into the parable of the prodigal son, this is an odd situation.

Is the rent at least lower than market rate? It seems like it might be time to go off on your own and rent an apartment not affiliated with your family. Then, the property you legally own be managed by your dad, and he can use the revenue to maintain the property you will receive when he passes.

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    Note that a clever person might actually make the gentlemen's agreement an actual legal one; ie, enter into a contract as part of the sale of the property to the LLC to lease the property back for 1$ per year ending on both your father and mother's death, with zero liabilty for the state of the property on the part of your father and mother. Such "cleverness" would depend on local juristiction and hiring a lawyer who thinks of it. In short, the OP isn't showing all the cards, the OP needs a lawyer. – Yakk Oct 31 '17 at 14:54
  • Unless the parents estate and/or house is worth greater than $5.5 million, estate tax is NOT the issue at play here. This strategy might avoid probate in some states, which is a good thing. Writing a valid will would avoid probate in most states too. – Tim Nevins Oct 31 '17 at 16:09
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    An estate worth more than $5.5 million is not that rare these days. Many a coder who contributes to SE might have this much money after 2 or 3 decades of work, with some decent investing. – axsvl77 Oct 31 '17 at 16:14
  • @axsvl77 Indeed, millenials will probably need that much for retirement, thanks to inflation. – reirab Oct 31 '17 at 18:19
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    Over here (Germany) there's a very official legal construction for step 3+4: usufruct (Nießbrauch). The ideas (in addition to clear inheritance tax/issues) are that once the ownership of the house is transfered, Dad still needs to live somewhere, so he kept the right to live in the house for the rest of his life. However, it is not unheard of that elderly people need to get care that they cannot in their home - and that can be costly. So Dad keeps usufruct, so in case he moves out (e.g. into a nursing home) the rent earned from the house is his and can help paying the nursing costs. – cbeleites Oct 31 '17 at 19:25

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