Taxes on Investment property: LLC to Personal name switch

[Daniel Jenkins]

Hi All, 

Just looking for some advice and recommendations for an excellent CPA. 

I purchased my first fix & flip in March this year in Charlotte, NC. Purchased all cash from a wholesaler. After reading various sources I went the route of forming an LLC and purchasing through that. It hasn't turned out to be a great deal as the rehab was far more than expected but fortunately, market appreciation might end up saving my bacon. The might be very small profit or a slight loss after all sales fees etc.

My question is related to taxes. I'm married and file jointly. The rehab should be done in the next couple of weeks at which point I will list it for sale. My concern is that it won't sell for a price that I will recoup the investment. If that's the case I'll need to rent it out for a while and loan products seem to be much much better for a personal loan vs. LLC.

I can deed title of the property from my LLC to myself now (a simple process) but:

- Will this incur taxes at the time of transfer?

- Does there need to be a financial consideration for this to 'pay back' my LLC which made the initial investment?

- Is it better to just sell the property from the LLC so that the buy, the rehab and the sell are all contained within that entity?

Any thoughts and advice on this would be very much appreciated. 

Thanks very much. 

Dan

[Ashish Acharya]

Originally posted by @Daniel Jenkins:

Really appreciate the response, @Christian Stoecklein. 

Up until this morning (when I just filed the amendment) the entity was multi-member. Just removed the other member so now it is a single member, or at least once processed by the state.

good point on the transfer taxes. I calculate those to be in and around $380-$400 based on where I am.

The quote I got was for an investment property, yes and the rates were higher but ideally I would like to just sell it and move on to a better deal. Overpaid for this from the start but you live and learn :)

I'm assuming it's better to keep the LLC to allow me to write off expenses related to the property rehab and travel etc or does the single member entity factor still count and my return would be treated the same as a self employed or personal tax return anyway?

- Will this incur taxes at the time of transfer? - contributing and distributing the property of SMLLC/MMLLC taxed as a partnership are a non-taxable events.

- Does there need to be a financial consideration for this to 'pay back' my LLC which made the initial investment? - No, because the initial investment was also your contribution. 

- Is it better to just sell the property from the LLC so that the buy, the rehab and the sell are all contained within that entity? - There is no tax saving from doing this. Legal is a different issue. 

- I'm assuming it's better to keep the LLC to allow me to write off expenses related to the property rehab and travel etc or does the single member entity factor still count and my return would be treated the same as a self employed or personal tax return anyway? - LLC is not better to write off the expenses as you get the same write-off without LLC. Yes, SMLLC is disregarded for taxes and the rental activity will be reported in your personal return but not as self-employed. 

The easiest way to do this is: take the property out of the LLC, get the loan in your name, and contribute the property back to LLC. I don't think you need to worry about the due on sale clause especially if your LLC is SMLLC.