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How to transfer the investment real estate ownership from LLC to members personally and avoid or minimize the costs and taxes?

Huntington Station, NY |

My wife and I own a 2-member LLC that owns a real estate property used for rental income. We'd like to cease using it as a rental, renovate and move in. There is no loan or mortgage associated with it. How can we transfer the ownership from the LLC to ourselves to keep the costs and taxes on the minimum, and what would be the tax consequence, if any? Would there be any other undesirable consequences?

Attorney Answers 5

Posted

The technical issue is the adjusted cost basis you take in the property upon distribution to you on a dissolution of the LLC. Your tax basis in the home will be a function of what your basis was in your membership interest which gets swapped essentially for the home. Your CPA will need to do the calculations of the transferred basis you will have in giving up the llC interest in exchange for the property itself.

My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.

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Posted

What if the LLC does not get dissolved? Why the assumption that it would be? We are basically talking about transferring a property to members who own 100% of the LLC and are husband and wife - which means it is wash in terms of taxes, so the only question is what would be the basis for the transfer tax - and is the transfer tax the only tax payable.

John P Corrigan

John P Corrigan

Posted

NY has a "transfer" tax for real estate but since the consideration will be zero (because you are merely distributing the asset) then it will not attract any transfer tax, albeit you still have to file Form TP 584 and claim the exemption. The way to legally convey the asset is to do a quitclaim deed from the LLC (as grantor) to you and spouse (as Grantees).

Asker

Posted

Thanks. That comment is the answer I was looking for, and is thus the best answer. (I can't find a way to mark it as such; seems I can only chose the original entry, and that is not the one that I'd select as being the best.)

John P Corrigan

John P Corrigan

Posted

U welcome!

Posted

You should really seek the services of an accountant and/or a tax attorney. It sounds like you want to liquidate and dissolve the business. This activity can have tax consequences, but it is very fact specific.

This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. I may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit my website: www.waterstaxlaw.com

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Posted

OK, thanks. Besides the advice 'you should seek an advice of the professional', could you elaborate on the specific facts that would impact the tax consequences? (Sorry, but it is no use to tell me I need to seek advice of an accountant or tax attorney; I know that, and the very reason I'm asking the question here is because I was under impression there are accountants and tax attorney here willing to provide at least a bit of free advice in addition to advising me to contact one...)

Daniel Boyd Waters

Daniel Boyd Waters

Posted

The free advice that is generally given on this site is based on generalities of tax law. When a question is asked that requires a very fact intensive review of the matter it is near impossible to give any advice outside of stating you need to seek a paid review of the matter. Furthermore, attorneys are constrained by ethics codes that start to create attorney/client relationships based on our interactions with people seeking advice. An attorney risks having liability for your matter by attempting to give specific direction to you on a matter that has too many possible variances. With that said one specific area of concern will be the basis that you and your wife have in the property.

Asker

Posted

This answer seems as over-complicating things. In this case it is very possible to provide a better answer then 'you should seek an advice of the professional'. (Perhaps I was mistaken thinking all the folks answering questions here are professionals, but that's beside the point.) There is no breach of the ethic code if one states in the answer that it is based on certain assumptions and simplifications and that other facts could invalidate the answer, or something to that respect... an attorney would know how to phrase this better than I did. The bottom line is, if you can't provide better answer then 'ask a professional', then please do not answer; it is not helpful and it is a waste of your time writing it and my time reading it (and eventually responding to it, but I take this part as a useful feedback to everyone who is attempting to do the same). If you think that there are facts that are not provided that may affect your answer, please say so, and list those facts. For a good answer (in my subjective opinion, of course, but hey, I'm the one who asked the question) please the comment (not the original answer) from Mr. John P Corrigan below. In any case: I sincerely thank you for the effort of engaging in a discussion.

Posted

You really need the help of a CPA with this one. There are many other factors to consider.

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Posted

OK, thanks, but I know there are factors to consider. Would you be so kind to elaborate a bit, which factors? Sorry, but, yes, I can go to talk to CPA or an attorney - I don't really need that advice, as otherwise what is the use of this site. I was hoping to get a bit more precise information here then just 'oh, you must talk to a CPA or an attorney'. Which factors should be considered? Thank you.

Cheryl Rivera Smith

Cheryl Rivera Smith

Posted

Short answer, the LLC would deed to you individually. Not being a NY attorney, I don't know the state tax ramifications. If it has been rental property and depreciated, you may have recapure issues.

Asker

Posted

OK, that's my understanding as well. I believe there is a transfer tax that would have to be paid. Thank you, this is the most straight-forward answer. It would be great if someone who knows NY tax laws could comment further to add some details.

Posted

I agree with my colleagues - this question should be directed to your CPA.

If this answer was helpful, please mark it as helpful or as a best answer. This answer is for general education purposes only. It neither creates an attorney-client relationship nor provides legal guidance or advice. The answer is based on the limited information provided and the answer might be different had additional information been provided. You should consult an attorney.

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Posted

Right, thank you. Again, I'm failing to see a benefit of avvo.com if the only advice given is 'you need to talk to your CPA or your attorney'. I was hoping to get a bit more details than that, but thank you for spending time on writing this advice - I know it needed few minutes and the time costs money.

Posted

In addition to a CPA, you should also contact a good trusts/estates attorney to ascertain what trust structures might be appropriate for your situation.

The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.

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Posted

Trust structures...? Could you elaborate, please, as I don't see clearly why would a trust be of interest here. It sounds as complicating things further, so what would be a benefit of first considering, and then eventually setting up a trust of a certain structure? Thanks.

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