Property on market with potential for rebuild, should my LLC buy?

[Christine Tran]

Hey BP community! My business partners and I found a duplex for sale in Norfolk, VA that we plan on tearing down and re-building in one year (due to the materials shortages we're seeing right now). However, if we buy this property as an LLC we'd have to go through a HML/commercial loan and pay high interest rates/points on closing. What are the tax consequences if only one partner purchases the property under a traditional mortgage, and then transfers this to our LLC (with 4 partners) in one year? Here are the options I've run through in my head, please let me know what your thoughts are and which is the best, or if there is something better that we could arrange.

1. Parter A (who buys the property) sells it to LLC at cost basis so no gain would be recognized on the sale, there would be minor transaction fees on the sale

2. Partner A contributes the encumbered property to LLC (assuming title transfer and mortgage transfer are possible), no gain recognized on the contribution, and then subsequently LLC makes a distribution to Partner A to keep the ownership % even across the partners at 25% each

Question: would this trigger the disguised sale rules? Does Partner A have to pay any taxes on the liability assumed by the LLC?

Looking forward to your creative ideas!

Christine