I am under contract to purchase a condo in NH in my name to be used as a STR. We are paying cash. I plan to transfer the property into a multi member LLC (myself and family owned) shortly after closing. My question is if I sell a few years from now will we need to pay capital gains taxes on 100% of the selling price as the LLC will have acquired the property and not purchased it directly (and thus cannot deduct the purchase price from sell price to determine capital gains?). If this is the case I presume it is very important to acquire the property in the name of the LLC from day zero rather than purchase as an individual. I am doing it this way as the LLC is not completely formed (need to amend the formation documents and operating agreement to change from a single member LLC to multi-member). I'm sure I can manage to set this in order if it is imperative that I purchase with the LLC. Thank you very much for the insight!
@Michael Callahan pulling this out of your post so it's clear what you are asking:
My question is if I sell a few years from now will we need to pay capital gains taxes on 100% of the selling price as the LLC will have acquired the property and not purchased it directly (and thus cannot deduct the purchase price from sell price to determine capital gains?)
Answer: No, you won't need to pay taxes on 100% of the selling price.
However, if you are transferring this into a multi-member LLC after purchasing it make sure the basis for each LLC Partner is accurate.
*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
1) why are you bothering with the LLC? (It won't be privacy as e records will make it obvious what happened.
2) It’s not for asset protection because the whole property will still be at risk and you will most likely be held personally responsible for any injuries at the property. (Obviously get an umbrella policy instead.)
3) you don't clarify who "we" is but I assume you are including a non-spouse since you're saying multi-member instead of the much easier disregarded single member LLC. But I'm sure your CPA could figure out how record your contributions to the LLC and allocate costs, if not, get a new one. ps after Wayne's comment I did 2- seconds of research and it does appear that even multi-member llcs default to disregarded entities unless you specify otherwise. So definitely no cost basis problems
4) But assuming the other non-spouse(s) are contributing cash as well, why not just use tenants in common with percents of ownership specified?
TLDR: I don't think you'll have a tax basis issue, but I also don't think you need to crate the LLC in the first place. You're adding costs and complications.
@Michael Callahan pulling this out of your post so it's clear what you are asking:
My question is if I sell a few years from now will we need to pay capital gains taxes on 100% of the selling price as the LLC will have acquired the property and not purchased it directly (and thus cannot deduct the purchase price from sell price to determine capital gains?)
Answer: No, you won't need to pay taxes on 100% of the selling price.
However, if you are transferring this into a multi-member LLC after purchasing it make sure the basis for each LLC Partner is accurate.
*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.