Selling a Property alone or within an LLC Tax advantage or Disadv

Buying & Selling Real Estate
7yFollow

Selling a Property alone or within an LLC Tax advantage or Disadv

Kristen Bouvier Scoville
Rental Property Investor · Member since 2019 · 19 posts · 10 votes

Tax Question... I have a Commercial Property within an LLC. Tenant wants to purchase. What is the advantage and/or disadvantages of selling with or without the LLC attached for me? Or is there any? Im in New York state? Obviously I will have to pay capital gains but unsure if I sell with the LLC if it will helpmeet or not if if it really doesn't matter. Does anyone have any input on this?

0Reply
25 views

Most Popular Reply

Thomas J.
Raliegh, NC · Member since 2018 · 50 posts · 19 votes
7y

LLC's are pass through taxation. They're set up to separate liability from yourself, but the taxes flow through to you. Corporations with an S election are taxed the same. C-Corporations file a separate return. You can avoid a lot of capital gains with a 1031 exchange.

1Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Thomas J.
    Raliegh, NC · Member since 2018 · 50 posts · 19 votes
    7y

    LLC's are pass through taxation. They're set up to separate liability from yourself, but the taxes flow through to you. Corporations with an S election are taxed the same. C-Corporations file a separate return. You can avoid a lot of capital gains with a 1031 exchange.

    1Reply
  • Tanner Crawley
    Realtor · Lone Tree, CO · Member since 2017 · 139 posts · 112 votes
    7y

    @Kristen Bouvier Scoville

    Definitely 1031 or invest in an Opportunity Zone. Both effectively allow you to defer capital gains. Opportunity Zones allow you to reduce your tax basis as well when it comes due and be exempt from further taxes.

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    7y

    @Kristen Bouvier Scoville, if you want tax deferral from a 1031 then you want to have the LLC sell the property and subsequently the LLC will need to purchase the replacement property as well. The IRS requires that the tax payer be the same on the old and new property when done as a 1031.

    Not so important for an opportunity zone although there are some tax deferral benefits available with those.

    The only advantage I can easily see is that the LLC itself has value. It is seasoned. And if you well the LLC rather than the property your buyer can avoid paying for a real estate closing and new title insurance. You might get a pop in price if sold this way.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    1Reply
  • Kristen Bouvier Scoville
    OP
    Rental Property Investor · Member since 2019 · 19 posts · 10 votes
    7y

    @Dave Foster Ok great.. Thanks so much.. My thoughts.. I just wanted verification.. And that is what we did was negotiate an increase in price if sold with the LLC. I just wanted to be sure I was receiving the correct information.

    Thanks again!!!

    0Reply
  • Llewelyn A.
    Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
    7y

    @Dave Foster

    @Kristen Bouvier Scoville

    I remember reading somewhere, probably here in BP, that it is BEST for the Buyer of the Property to NOT take the Property via the purchase of the LLC.

    The problem for the Buyer is that any pending or future Lawsuits that would be filed against the LLC can affect the new Owners of that LLC.

    This is all from memory so I don't know if this is 100% Correct.

    BUT... if it were me purchasing the Property, I think it's too risky as I would inherit any potential problems from the past history of the LLC, even if it has a good Credit History.

    Just curious what you think.

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    7y

    @Llewelyn A. Very valid point. You do inherit all the baggage of the Llc. Definitely a second layer of due diligence might be required. But in any case as the member of the LLC you've still got the protection of the LLC

    The 1031 Investor5137 Reviews
    WebsiteView Page
    1Reply
  • Llewelyn A.
    Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
    7y

    @Dave Foster

    @Kristen Bouvier Scoville

    Yes, that's true that a member has protection under the LLC.

    BUT... I still am a bit Paranoid with just selling the LLC.

    Suppose Kristen sold the Asset and terminated the LLC. If there were any potential baggage, I don't think they would be able to do anything against a terminated LLC.

    BUT, in a scenario where the LLC was sold to new Owners and the baggage made a claim on that LLC, the new owners of that LLC may want to sue Kristen personally if it was for something like Gross Negligence?

    Kristen, what does your Attorney in the Sale to the new owners advice? Sell the Asset and terminate the LLC or just sell the LLC? Just curious!

    1Reply
  • Kristen Bouvier Scoville
    OP
    Rental Property Investor · Member since 2019 · 19 posts · 10 votes
    7y

    @Llewelyn A. the negotiation is between tenant and us right now. Buyer wants the LLC and we are considering it. But you all have really valid points. I really appreciate your input. Would be interested to find out what our attorney says. Would we as members be covered after the LLC is sold? I almost think that we would be better off selling it because of the possibility of someone having a possible old claim. I believe if the LLC is terminated then there is more room for potential liability. Depending on the laws and how many years someone can go back on a claim etc. I'll keep you guys posted on what I find out.

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    7y

    @Kristen Bouvier Scoville Not expressing a strong opinion either way.  It'll be a personal preference choice.  Nothing in life is sure I spose except the attorney bill.  But three other things to consider.

    1. Terminating the LLC prior sale puts a 1031 exchange at risk because you appear to be changing the tax payer right before sale. I say appearing because you may not actually be but if you're not then you're the tax payer for the property any how and the corporate veil at that point is about as thick as a credit card turned on end.

    2. Terminating the sale and putting the property into your name right before a sale totally opens you up personally in the chain of ownership.

    3. If that LLC is single member/single asset then transferring the membership of the LLC is considered to be the same bundle of rights as selling the property itself and you can indeed to a 1031 although you are not exactly selling the real estate.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free