I have lived and owned this property for more than 2 years - since 2011.
I initially owned it when I was single but February of last year (2014) I got married.
So should I qualify for the 500,000 tax exemption as well? Thank you in advance!
I am the sole owner of my own home and will transfer title to an LLC which I am also the sole owner.
I would ask what you hope to accomplish by putting the home in an LLC. Typically, an LLC needs a business purpose. By definition, your own principal residence is personal use and is not a business use, so it is unlikely that an LLC is the best vehicle for your personal home. If you are looking for asset protection, I suggest that insurance is a more efficient (and possibly more cost-effective) path.
Regarding the $500,000 exclusion:
First, I am skeptical whether you can maintain an exclusion of captial gains for a personal residence if the property is in an LLC. If you own the property personally, 121(b)(2) provides that for certain joint returns will qualify for a $500K exclusion if
(i)either spouse owns the property;
(ii)both spouses lived in the home for two of the last five years with respect to such property; and
(iii)neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph having too may sales under the exclusion.
I hope this is helpful.
Excellent question. For the sake of your question, let's assume it's a good idea to have an LLC (Limited Liability Company) own your primary residence. If the LLC is a passthrough entity, meaning the LLC is owned solely by you, then the property owned by the single-member LLC is eligible for the Section 121 exclusion from gain.
However, in my experience it's generally not be a good idea to have an LLC own a primary residence. Moreover, if your goal is asset protection a single-member LLC may not be the best entity to accomplish that goal. I suggest that you speak with an attorney to ensure that the planning accomplishes your goals.
A single member LLC that is disregarded for Federal income tax purposes is disregarded and you should still get the Federal income tax benefits as it you owned the property in your own name.
However, California may see things differently. The LLC fee starts at $250,000 of gross receipts and would be owed on the sale of the property. This could add thousands of dollars to your tax bill.
As for the estate tax, there shouldn't be any consequence to owing the property in an LLC that is disregarded.
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