LLC owns my primary residence -- $250k exemption apply???

Question

I have a single-member LLC that owns a residential property. The property is my personal primary residence. If I sell my house in, say, 3 years, am I still eligible for the $250k exemption?

Ebere Okoye · Answer

Yes, as long as you are living in it 2 out of 5 years preceeding the sale date. The legal ownership is not as important as your residency status on the house.

Bill Walston · Answer

Excellent point...in this type of strategy the ONLY function of the LLC should be to hold title to the primary residence.  The LLC should NOT carry on any business activity for exactly the reason that Steven stated.

Steven Hamilton II · Answer

Bill Walston,

Correct. This IRS opinion is subject to change, especially if they can determine a business intent or future business intent.

Mark Beekman,  Bill is exactly correct. Just be very careful in the future to make sure you ask a tax advisor before making major financial decisions.

-Steven the Tax Guy

Your guide to IRS laws, rules and regulations.

Bill Walston · Answer

As a general rule, for a disregarded entity, the owner will be treated as owning the residence for purposes of satisfying the ownership requirement of section 121, and the sale or exchange by the entity will be treated as if made by the owner.  This has been applied to both revocable grantor trusts and the SMLLC.

In other words, yes.  That being said, the Service has been known to reverse the way that view transactions, so this could change.

Mark Beekman · Answer

Hi, Steven. My reasoning would be too long-winded to post here. I've only owned/lived in the house for a few months and I haven't done either of the two things you mentioned. I'm just wondering if in a few years I can sell the house and have any potential gains covered under the $250k exemption, since it is my primary residence. Do you happen to know offhand?

Steven Hamilton II · Answer

Ken,

What was the point of having an LLC own your primary residence?
You cannot pay yourself rent or deduct depreciation. If you did do those things I'd highly recommend amending those returns and transferring the property into your name.

-Steven the Tax Guy