All Forum Posts by: William W.

Thanks @Bryan O..   I'm virtually certain the IRS does not disallow transactions to entities controlled by a parent.  Parent companies constantly transfer assets between affiliates.  Granted there are rules regarding transfer pricing that need to be followed.   Obviously this is a very discrete type of transaction.

Yes @Bryan O.  yes clearly it needs to be at fair market value but I will raise the topic more broadly.  

@Julius Dixon  there are many reasons and circumstances can differ but double taxation is one.  Some others.  https://www.biggerpockets.com/renewsblog/2016/07/07/ten-reasons-corporations-real-estate-ownership/

Thanks Matt

I've googled the heck out of this and come across lots of related conversations but nothing that addressed this issue directly.   I know a number of people that have converted their condos (primary residence) to rental properties but I don't think any of them considered the tax impact which can be HUGE...it's just they don't realize it until they sell..or worse yet, the never realize that they forefited the tax free gains they would have otherwise been entitled too.  That can be years of rent they just forked over to the government when they could have just sold it outright or be thoughtful about structuring the transaction.  

Julius

Yes, in this case the cap gains from the sale of the property would be realized upon closing.  Since this is a primary residence I would owe cap gains on anything over $250k (price paid + improvements - sale price)  It's about 250k right now.  

Getting 250k tax free is a pretty exceptional opportunity and one I'm trying to preserve. 

The point about the disregarded entity seems facially valid.  I think I could elect to have it treated as a corporation for tax purposes and that might avoid the treatment as a disregarded entity, but I'm told that putting real estate in a corporation is a bad idea. 

Thanks Tom

My CPA's initial reaction was that he thought it might work.  Again, he said he needed to look at some things.

If you are corrent, then why not set up a multi-member LLC. Me and my elderly mother who intends to will me her share in the LLC when she passes on. If the intent of the rule is to prevent transactions like this it seems like it would be easy to structure around either using some mechanism like this or by using something other than an LLC? Perhaps you have another form of entity buy the assent and then convert the form of the entity.

Hello. 

I've seen this question asked before but I haven't seen an answer that address my specific concern.  I think the question is best posed to this sub forum.

I have a condo that I've owned as my primary residence. I have a $250,000 gain that I would like to preserve tax free since I've lived in it the last 2 of 5 years. There is no mortgage. I'm considering either selling it or renting it out. If I rent it I would want it in a Delaware single member LLC for liability protection.  I would be the sole member.

My question:

1. Can I create a single member LLC (or other type of entity) that would buy the property from me at the new fair market price - either financed or not - and preserve my tax free gain.

2. The new LLC would acquire the property at the new fair-market stepped up basis and rent it out.

I would like to rent the property out but don't want the direct liability. I also would like to lock in the tax free gains at the stepped up basis.

If I sell it to the LLC there would be transfer and title taxes but they will be much less than the taxes on the gains if I rent it out and choose to sell it in 5 years.

I will consult with a CPA but the worse case scenario would be I go through all the trouble to sell it to a single member LLC and somehow lose the exemption on the tax free gain.  

Thoughts, reflections?

My primary questions are:

1.  Would this somehow be disallowed and I would lose locking in the stepped up basis tax free.

2.  Am I missing something else that might not make this strategy worthwhile?

Thanks

Hello.  First post here but I've been incredibly impressed by the level of knowledge and sophistication of the community.   

I've seen this question asked before but I haven't seen an answer that address my specific concern.

I have a condo that I've owned as my primary residence. I have a $250,000 gain that I would like to preserve. There is no mortgage. I'm considering either selling it or renting it out. If I rent it I would want it in a Delaware single member LLC for liability protection.

My question:

1. Can I create a single member LLC (or other type of entity) that would buy the property from me at the new fair market price - either financed or not - and preserve my tax free gain.

2. The new LLC would acquire the property at the new fair-market stepped up basis and rent it out.

I would like to rent the property out but don't want the direct liability. I also would like to lock in the tax free gains. If I sell it to the LLC there would be transfer and title taxes but they will be much less than the taxes on the gains if I rent it out and choose to sell it in 5 years.

I will consult with a CPA but the worse case scenario would be I go through all the trouble to sell it to a single member LLC and somehow lose the exemption on the tax free gain.

Thanks