How to transfer residential property to newly formed LLC

[angela1]

My clients bought a rental property in Feb 2021 to use for Airbnb. A "friend" told them they should create an LLC for this rental. In July 2021 they used legal zoom to create an LLC. Since they did all of this themselves, there are a lot of items that need corrected. For example the property and mortgage is in the owners name and not associated with the LLC at all. The LLC pays the mortgage and all related expenses. My research tells me that they need to have an attorney draft a "Quit Claim Deed" and legally transfer it to the LLC. My clients do not want to do this. Is there something easier they can do? Can they do a transfer of the property without the Quit Claim Deed and amended the partnership agreement to state that the owners are transferring the property to the LLC?  

Side note: My clients are a husband and a wife. This will be filed as a business and not a rental because they offer substantial services and have a short rental stay. 

[qbteachmt]

"This will be filed as a business and not a rental because they offer substantial services and have a short rental stay."

Well, now you have to know if the LLC will file as Disregarded (Schedule C, joint venture or not) or Partnership (1065). If not partnership, their friend is an idiot.

What you asked is legal, not tax related, and locality-specific. And you have no idea if a change on the Mortgage will trigger a note call; if the change on the Deed will trigger transfer fees/tax; if their Insurance coverage is in their name, the LLC? Did they even get this covered?

They need business guidance from someone local. Not tax guidance and not from a Friend.

[angela1]

I completely agree. They said it was a "hey this is what you should do type of situation". Then they realized they needed real help.

They do have the insurance in the LLC name. They live in a state that allows a joint venture. I just received a copy of there SS-4 and they filed that as a disregarded entity one member LLC. I am going to file the return as a Schedule C. My concern is if the property is not in the " LLC" name then they can't take the depreciation. Does that even matter anymore since it's a disregarded entity and it will be filed as a C. Am I making this harder than it is? 

[qbteachmt]

"My concern is if the property is not in the " LLC" name then they can't take the depreciation"

This is going to be part of their personal 1040. IF it is used for business and meets the rules, it qualifies.

"Am I making this harder than it is?"

Oh, no. It is hard, in that there are a lot of parts. It will be fine. If they have liability insurance for the LLC, then treat the operation on Sched C as under the LLC, because that is the resource that provides risk to them. That LLC never would have protected their assets from anything, on either side of the ownership position. That's one of the issues for LLC as disregarded.