Will the Bank Exercise the Due On Sale clause on me?!

Banks generally do not want to enforce the "due on sale" clause as it costs them money and is a headache, especially since they've often sold mortgages to Wall Street. As long as payments are made, they have little incentive to call the mortgage due. Many mortgages also include provisions that allow for transfers to trusts or LLCs without triggering the clause, as long as the underlying ownership doesn't change. The key is to avoid directly asking the bank for permission to transfer the title, as this can cause unnecessary complications.

When transferring property to an LLC or trust, use a warranty deed or grant deed to transfer all existing warranties from the title policy to the new entity. This ensures your LLC or trust is protected. It's crucial for the LLC to be registered in the state where the property is located, and for the LLC to be listed on the title and lease agreements. Additionally, inform your insurance company about the change to a rental property and ensure the LLC has its own bank account for rent payments and mortgage payments. If using an LLC to own the rental property, consider having a trust own the LLC for estate planning and asset protection.

Regarding short-term rentals of a primary residence, if it's used as a primary residence for 50 days or more a year, it won't qualify for the short-term rental depreciation loophole. However, income and expenses should still be reported on Schedule E as a rental property, not Schedule C, as it's considered passive income. For beekeepers with a home office and a separate property 50 miles away with beehives, mileage to the first location is considered commuting, but travel between multiple beekeeping locations is deductible business mileage.

• Banks are unlikely to enforce the "due on sale" clause if mortgage payments are current, especially after selling the mortgage to Wall Street.
• When transferring property to an LLC or trust for asset protection, use a warranty deed or grant deed and avoid asking the bank for permission.
• Short-term rentals of a primary residence for 50 days or more annually won't qualify for specific tax loopholes but should be reported on Schedule E.
• Mileage to a business location 50 miles away is considered commuting for the first trip, but travel between multiple business locations is deductible business mileage.
• Using a Roth IRA LLC to purchase a computer solely for trading crypto can be a prohibited transaction unless it's for specialized activities like mining and is fully dedicated.

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The "Due on Sale" Clause and Property Transfers [0:08]

• Banks generally avoid enforcing the "due on sale" clause because it costs them money and creates administrative headaches.
• Most mortgages have been sold to Wall Street, meaning the originating bank has no interest in calling the mortgage due.
• As long as mortgage payments are consistently made, banks are unlikely to scrutinize or act upon the "due on sale" clause.
• Many mortgages include provisions allowing transfers to a trust or LLC without triggering the clause, provided the underlying ownership remains the same.
• The speaker advises against asking the bank for permission to transfer title to an LLC or trust, as this can lead to unnecessary complications and scrutiny.

The reality is banks do not want to call the do on sale clause. It costs them money. It's a headache.

This section emphasizes that banks have little incentive to trigger the "due on sale" clause, primarily due to the financial and administrative burdens involved, and the fact that they often no longer hold the mortgage.

Transferring Property to an LLC or Trust [04:04]

• Many mortgages have a provision that allows transfers to a trust or LLC if the underlying ownership doesn't change.
• Transferring property to an entity for estate planning or asset protection purposes, without changing beneficial ownership, may not trigger the clause.
• It is crucial not to ask the bank for permission to transfer title to an LLC or trust, as their internal processes can be bureaucratic and lead to unwanted attention.
• When transferring property, use a warranty deed or grant deed to ensure all warranties from the title policy are transferred to the new entity or yourself.
• This process allows your LLC or trust to inherit the warranties you had as an individual, providing protection.
• Ensure the LLC is registered in the state where the property is located.
• The LLC should be listed on the property's title after the transfer.
• Lease agreements should list the LLC as the landlord, not your personal name.
• Notify your insurance company that the property is now a rental to ensure proper coverage.
• The LLC should have its own bank account, and rent payments should go into this account.
• The LLC should pay the mortgage; the bank only cares that the mortgage is paid, not the source of funds.
• Consider having a trust own the LLC that owns the rental property for added asset protection and to avoid probate.

You do not want to go into the bank and start asking these questions because they will freak out as bankers do.

This section provides practical advice on how to legally transfer property into an LLC or trust for asset protection, stressing the importance of the correct documentation and avoiding direct communication with the bank that could lead to complications.

Short-Term Rental of a Primary Residence [07:40]

• It's possible to short-term rent out parts of a primary residence, like a basement or accessory dwelling unit, to generate extra income.
• The strategy discussed involves partially renting out a primary residence while maintaining personal use, allowing for income generation while traveling.
• This approach can involve "lock-offs" to secure personal areas when renting out the rest of the house.
• However, to qualify for the short-term rental tax strategy, known as the "short-term rental loophole," the property must be 100% a short-term rental and not used as a primary residence.
• If a property is used as a primary residence for 50 days or more annually, it will not qualify for the short-term rental depreciation loophole write-off.
• The focus should be on generating cash flow from a property that would otherwise be vacant.
• Income and expenses from such rentals should be reported on Schedule E as a rental property, not as ordinary business income on Schedule C.
• Short-term and long-term rentals are considered passive activities and are reported on Schedule E.
• The advice is to prioritize sound financial decisions and then determine the best tax strategy to align with those decisions.

Don't let the tax tail wag the dog. Make a good decision financially and then let's figure out the best tax strategy to go with the best financial strategy.

This section addresses the complexities of treating a primary residence as a short-term rental, clarifying tax implications and advising a financially driven approach over tax-driven decisions.

Business Mileage and the Beekeeper Scenario [13:01]

• The general rule is that mileage driven for business purposes away from your home office is deductible.
• However, traveling to a business location that you visit daily or repeatedly is considered commuting and is not deductible.
• For a beekeeper with a home office and a separate property 50 miles away with beehives, the initial travel from the home office to the first beehive location is considered commuting.
• Mileage between multiple beehive locations, or other business locations, is considered business mileage and is deductible.
• This principle applies to various businesses with multiple locations, such as dentists, chiropractors, or restaurant owners.
• Rental property owners can generally deduct mileage from the moment they leave their house to visit their properties, as they are not going to a single, fixed place of business every day.
• The auto deduction is still available, but it's essential to estimate mileage and keep a log, possibly using mileage-tracking apps.
• The decision to add business locations should be economically driven, not solely for tax write-offs.

The bottom line I want to say is the auto deduction is live and well. Don't be afraid to take it.

This section clarifies the nuances of business mileage deductions, particularly differentiating between commuting and deductible business travel, using a beekeeper's situation as an example.

Roth IRA, LLC, and Crypto Transactions [16:58]

• There are two main ways to invest in crypto with a Roth IRA: directly through an app (like Gemini) or by using an LLC owned by the Roth IRA.
• The direct app method is simpler but limited in the types of crypto that can be traded.
• An IRA LLC offers more flexibility for trading various tokens and DeFi assets but is more technical and incurs setup costs.
• Using an IRA LLC to purchase a computer solely for operating the Roth account's trading can be considered a prohibited transaction by the IRS.
• The IRS is generally lenient with minor personal use of existing devices (phone, personal computer) for trading within a Roth IRA.
• However, if the Roth IRA buys a dedicated computer for crypto trading, the IRS may view this as a prohibited use of funds, especially if the Roth's value doesn't clearly justify such a dedicated asset.
• Expenses like specialized mining equipment (CPUs, video cards) for an IRA LLC dedicated to mining are acceptable if they are solely used for that purpose and funded by the Roth IRA.
• It's crucial to justify the necessity of a dedicated computer for the Roth's crypto activities to avoid issues with the IRS.

If you need a brand new laptop or computer for that LLC to trade your crypto. Okay? You cannot touch that LLC. I'm sorry. You cannot touch that laptop for anything else. Not even to look at an email from your mom. Is that okay with you?

This section delves into the complexities of using a Roth IRA LLC for crypto trading, specifically addressing the potential for prohibited transactions when purchasing equipment like computers.