Sell Secondary home to LLC to avoid 5 years Capital Gains Tax

[Saran Mandhadapu]

Hello,

By end of 2018, I would have owned my Second home for 5 years and have stayed in it for 2 years as Primary Residence out of the last 5 years. I am looking to convert that into full time rental property and also I want to void paying the Capital Gains Tax (500K for Married filing jointly), I have considerable equity in the home, I don't want to sell the property to others now and want to hold it for few more years.

From the Article below by @Brandon Hall, I see that I can sell this SFH to an LLC I own. This property still has Mortgage Balance so I am aware of the Due-on-Sale clause may get triggered by the bank. I have also seen arguments against using QuitClaim Deed, instead some people advised to use Warranty Deed which preserves the Original Title insurance.

https://www.biggerpockets.com/renewsblog/2016/08/0...

Questions:

1) The article says we can sell to an S-corp, why can't it be an LLC (that has not elected S-corp status), any Tax consequences?

2) If I SELL it, then I may have to payoff the Mortgage Balance and also pay the Transfer Taxes. When the article refers to SELL, does it just mean using a Warranty DEED and transferring the ownership from personal name to the LLC name?

3) If the SFH Title is currently owned by both Spouses, can the LLC be a Single-Member LLC with the single member being the Holding LLC which has both spouses as partners?

This topic may have been discussed before, but I appreciate if I can get updated information after the new Tax Bill and also if this is still a viable strategy to avoid Capital Gain Tax?

Thanks,

Saran

[Donald S.]

I would suggest speaking with your CPA directly on this. In general terms @Brandon Hall strategy is probably good for you, although you'd need to sit down with someone who's a professional and knows your specifics to determine the best route for you. Individual situations can be vastly different which is why CPA's like Brandon when they give general advice, also suggest taking that and sitting with your personal CPA to see if it'd work for you in your situation.