Move asset to LLC before selling? Will it really matter?

Question

Need some help figuring this out...

The Mr earns @ $100k on his W2 job. He will retire from that this mid December. We live in California, but will move permanently to AZ in December.

We own 3 rental properties in AZ; one being a park model that is a STR that we have had for 14 months.

We created an AZ LLC. We were about to put the Park Model in to the LLC.

Current vacation renters just offered to buy the Park Model for $350k. We purchased the Park Model for $162k, and can claim around $30k cap exp for rehab, so tax basis of about $192k.

Should we hurry up and put the park model into the LLC before the sale? If we are still living in CA, but the LLC is in AZ, will it help/matter?

OR- we can WAIT and sell it to them in January, AFTER we've officially moved to AZ. They are fine waiting, but I feel like a bird in the hand is apt to fly away when it sees something better... ;)TIA!

Will Barnard · Answer

If you purpose of moving into the LLC prior to selling is some idea that your tax exposure will be reduced, you are incorrect. an LLC is a pass through entity and it is not a tax shelter for your sale. I suggest you speak with your CPA on this rather than asking the opinions of others here regarding tax exposure on your potential sale.

Gail W. · Answer

Thanks all... the reason I asked on here was 2 fold; my CPA was out on vacation for the long weekend, (but DID get back to me. She's the best!) AND I see freshies asking similar questions on other platforms and figured it would be a good one for someone to find in a search. ;) What she said, essentially-  NO, moving it into the LLC won't matter (for tax purposes). YES, wait til we are perm residents of AZ as their taxes will be so much lower than if we are residents of CA. And that was something we really care about... that keeps over $15k in OUR pocket. We already have a great "rent to own" contract we've used before, prepped by our atty. We got a nonrefundable down of $50k and balloon due mid January (the buyer also likes January as he wants to sell some options and needs to have it be in 2022 due to HIS taxes). We will put it in the LLC for the short life of the Rent to Own simply for protection (we will still have 100% control and will continue to rent it out/pay all costs).

We don't NEED to sell this property, so if he walks, we have $50k for doing nothing, so it's all good!To answer a few other items I saw in some responses: *The mention of a 1031 has been searing my brain all night! A park model is considered personal property until it is tied into a land parcel. Mine is on state owned land, run by a sub-concessioner.  1031s are exchanges for LIKE, so if I did a 1031, I could exchange it for another park model/mobile home (or 2)??? I always thought it had to be real property, not personal property, but after spending the morning researching this, I MAY BE ABLE TO DO THAT!! I will ask my CPA and atty again, once the long weekend is done. THANKS Doug McVinua for mentioning it! ;) (And yes, we ADORE Arizona!!)  *We don't OWN anything (any more) in CA. Sold all our holdings in 2019 and reinvested in AZ, buying 3 other rentals in various towns. We are here in CA temporarily on a job in a corp rental, but according to CA, not temp enough, (so hand over the tax, chumps). Retiring from this W2 career after 25 looooong years mid Dec. YAY!

Doug McVinua · Answer

@Gail W. It truly is time for a good CPA and attorney for your questions. One option might be to consider doing a 1031 exchange for another property. Invest the 1031 exchange funds into another property you might desire to live in one day. You would not be able to move in right away, but you could buy something, rent it for a time and then move into it later so you get get the capital gains exemption when you sell it. All questions for a good CPA if you really want to avoid the tax! The sale of your CA property also has an impact on all of this but with time you could really benefit from a 1031 exchange.

My wife and I love AZ, moved from Iowa 23 years ago. We have lived in the SE Valley and love the area.

Steve Vaughan · Answer

Great info.  Rare is it you see the question get answered by the OP!

I was also going to suggest an Option to buy.  Much more solid than a long-term PSA.

But be careful with the word 'down'.  $50k down sounds like a down payment and could be viewed or mis-understood to be a sale or seller financing.  Consideration is the term.  $50k in non-refundable Option Consideration 👍

John Duston · Answer

@Gail W.

The LLC won't change the taxes.

I sent you a connection request as the last item is a bit sensitive for a public forum.

Darius Ogloza · Answer

I do not see how, as California residents, you can avoid paying California state taxes on your capital gain income.  The question of whether you will also be required to pay Arizona state taxes (and get a credit in California) requires some further analysis.  By all means, consult a CPA.

Move asset to LLC before selling? Will it really matter?

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