Do you have to pay transfer tax if quit claim deed to LLC?

Question

Hello BP community,

If we quit claim a personal property into an LLC, are there any transfer taxes? We are based out of Georgia. From what I read online, if there is no cash exchanged, then there is only a $10 registration fee. But I'd like to confirm this, I'm not sure if our corporate attorney would know.

Are there any other taxes we should be aware of? I read there was a capital gains tax if the value of the property appreciated upon transfer. How do they determine if the property value has changed upon the quit claim deed?

Thank you.

Jason D. · Answer

@Roman M. He didnt say the property was in Georgia, and you stated that the IRS doesnt see a transfer as a sale... that has nothing to do with transfer taxes.

Nathaniel Fulford · Answer

The default rule for most (if not all) states is that voting rights, the sharing of profits and losses, and distributions from an LLC are allocated among its members based on the value of contributions made by the members to the LLC.  In a written operating agreement the members can allocate these items in any way they want.  However no operating agreement then the default rule applies.  Also most form operating agreements use the default rule as the standard.

So say the land is currently owned by 3 people and worth $75k.  They contribute it to the LLC while going into business with 2 other people whose contribution is less tangible.  In the beginning they may all think they own 20% of the LLC but when push comes to shove if there is no written operating agreement there is a good argument that there are in fact three members who each own a third.

Another facet of this is that contributions can be made in the form of services to the LLC.  So one of the noncontributing members above can make the argument that he contributed a 1,000 hours of services over the past year and the FMV of these services are $75k so he now owns half of the LLC.

My point is that when joining a multi-member LLC don't assume the default rule is what you want.

David Grant · Answer

I called the Fulton County tax assessors office and they said Fulton County does not have a transfer tax. This is quite interesting because if you Google Georgia Transfer Tax calculator, you'd think that there is a transfer tax for all of GA for property.

@Nathaniel Fulford

Thanks for your reply. Would you mind elaborating on the last part of your post: "A contribution of property to a multi-member LLC could effect the ownership percentage of the LLC in ways you do not intent to." The number of beneficial owners in the property is now different than the LLC - we'd like the property to of course, assume the LLC ownership arrangement based on how the LLC is organized.

Andy Mirza · Answer

My guess, and it's just a guess, is that the transfer would be exempt if all the members of the multi-member LLC owned the property as individuals (either on title or through agreement). Calling the county recorder's office is the cheapest and probably the quickest way to get the answer you're looking for.

Nathaniel Fulford · Answer

We do not do a lot of business in Georgia but my understanding is that Georgia Code Sec. 48-6-2(11)(a) exempts any deed from transfer taxes if the real property is being transferred from one or more individual owners to an entity.  The only requirement is that the individual owner(s) doing the transfer have a majority ownership interest in the entity.   If this exemption applies in your case it is good practice to have the exemption stated in writing on the deed so the clerk will know.

My advice would be to talk with a title company in the area who can give you a better answer on this and also help you record the deed.  I can only imagine it would take several hours to attempt to record a deed by yourself in a large metropolitan area like Atlanta.  It would be worth paying $100 to a title company to record it for you.

As for capital gains generally member contributions to an LLC are not taxable.  However this depends to some extent on how the LLC is taxed and the specifics of the transaction.  Is it a disregarded entity, is it taxed as a corporation, or is it taxed as a partnership.

You should talk to an attorney and/or CPA about the tax consequences and other potential concerns.  A contribution of property to a multi-member LLC could effect the ownership percentage of the LLC in ways you do not intent to.

Roman M. · Answer

If beneficial owners are the same in LLC then it is not a sale.

David Grant · Answer

@Andy Mirza Thank you, what if it is a multi-member LLC? I'll call the county clerk and ask

@Roman M. is it not a change of ownership if you quit claim deed it from personal ownership to LLC ownership?

To everyone else, yes the property is based in Atlanta, GA.

Jason D. · Answer

@Roman M. We're discussing transfer tax, not capital gains.

I'm based in Florida, have property in NJ.

Depending on where the property is, a quit claim deed could require paying a transfer tax

Roman M. · Answer

We are based IN Georgia is a hint.

Capital gain tax related to IRS

Roman M. · Answer

Since the property is not in Florida not sure how that answers a question for a property in Georgia.

Do you have to pay transfer tax if quit claim deed to LLC?

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