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What happens when an LLC distributes real estate?

Key Biscayne, FL |

The property was contributed to the single-member LLC around 2002. Assume that the property is worth less today than when it was contributed to the LLC. FOR FEDERAL TAX PURPOSES, can the property be valued at cost when it is distributed to the member, or does it have to be distributed at fair market value? If it has to be distributed at fair market value, the LLC would incur a tax loss and the member would receive a property with a very low cost basis. Is there any way to make sure the member doesn't get stuck with a potential future taxable capital gain? This is NOT and will not be a primary residence.

Attorney Answers 3


A single member LLC is a disregarded entity for tax purposes. A distribution from such an LLC would have no tax impact.

Disclaimer: This answer is provided for informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. Actual legal advice can only be provided after completing a comprehensive consultation in which all of the relevant facts are discussed and reviewed.

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There is no income tax concerns here. Your cost basis in the property you purchased became your cost basis in your LLC when you made the contribution (FMV is irrelevant). Now doing the reverse and distributing back out to you personally will mean your cost basis in the real estate will now be what your basis was in the LLC. This concept is known as "carryover basis."

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. Please click "helpful" or "best answer" if my answer added any value or add a "comment" if you have more info for me to help you get a better answer.

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I agree with John and Marshall that there is no change in value here. Your cost basis in the property you contributed to your single member LLC is your cost basis when you distribute it back into your personal name from the LLC. Consult with a tax attorney and consider adding another member to your LLC, so that you avoid some of the issues you are currently experiencing. An experienced tax attorney or CPA can guide you in this matter.

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