Legal Question in Tax Law in California

Re: Transferring personal real estate to an LLC

There could be multiple problems, taxwise. For example, if this is a primary residence, you will not have access to the $250K/$500K exemption from capital gains. An LLC is not a person that can have a primary residence.

Re: Transferring personal real estate to an LLC

The transfer of a piece of real property to an LLC should not generate taxable income in the LLC. Likewise if the person transfering the property is also the owner of the LLC, the transfer should not generate any taxable income to the transferor. See Internal Revenue Code Section 721.

Depending on the type of personal real property being transferred, there could be collateral tax disadvantages. Specifically, if the property is a personal residence, you will lose the ability to defer gain on sale (250K individual /500K couple). With rapidly inflating real estate markets in California, you may want to avoid losing this valuable tax advantage. Moreover, the continued use of a personal residence after transfer to an LLC could adversly impact the asset protection offered by the LLC. There are other asset protection techniques that could protect your personal residence without losing the tax advantage of the gain exclusion on sale. This would include equity stripping techniques.

Like most provisions of the tax code there are always exceptions to every rule, so you should seek the advice of a qualified professional and explain ALL of your facts and circumstances before you take any action. The information in this reply is not and should not be considered legal advice. You should not take action based on this information. Additionally, our answers do not establish an attorney client relationship. If you would like us to assist you, we welcome your call.

Best wishes,

David Jacquot, President

Law Offices of David Jacquot, JD, LLM (Tax),PA

www.4taxhero.com