Tax Implications of Sale of Primary Residence to LLC owned by me

[William W.]

Hello. 

I've seen this question asked before but I haven't seen an answer that address my specific concern.  I think the question is best posed to this sub forum.

I have a condo that I've owned as my primary residence. I have a $250,000 gain that I would like to preserve tax free since I've lived in it the last 2 of 5 years. There is no mortgage. I'm considering either selling it or renting it out. If I rent it I would want it in a Delaware single member LLC for liability protection.  I would be the sole member.

My question:

1. Can I create a single member LLC (or other type of entity) that would buy the property from me at the new fair market price - either financed or not - and preserve my tax free gain.

2. The new LLC would acquire the property at the new fair-market stepped up basis and rent it out.

I would like to rent the property out but don't want the direct liability. I also would like to lock in the tax free gains at the stepped up basis.

If I sell it to the LLC there would be transfer and title taxes but they will be much less than the taxes on the gains if I rent it out and choose to sell it in 5 years.

I will consult with a CPA but the worse case scenario would be I go through all the trouble to sell it to a single member LLC and somehow lose the exemption on the tax free gain.  

Thoughts, reflections?

My primary questions are:

1.  Would this somehow be disallowed and I would lose locking in the stepped up basis tax free.

2.  Am I missing something else that might not make this strategy worthwhile?

Thanks

[Tom V.]

Single member LLC is a disregarded entity as far as the IRS is concerned. It would be pointless for tax purposes.