What happens to capital gains when you transfer property to LLC?

Question

Hi all,

So the situation is as follows:

My father bought a house 15 years ago for around 300k, it can now be sold for about 700k so if I were to sell the property There would be a 400k capital gain. Last year my father and I created an LLC and transferred the house to the LLC for for a 34% stake in the property. Since there was no money exchanged in the transaction we didn't pay any taxes. Now if I sell the property, who would pay for the change in value? does the property still qualify for 1031? and is this question more suitable for a lawyer or an accountant?

Thank you.

Dave Foster · Answer

@Bin Chen, If handled correctly the property was contributed to the LLC at basis so the 400K gain will be recognized by the LLC and then passed to the two of you as members through the partnership return.

Your opportunity is that any tax filing entity can complete a 1031 exchange. In this case the LLC is now the tax payer for the property so the LLC could sell and complete a 1031 exchange and continue to defer all that tax.

What happens to capital gains when you transfer property to LLC?

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