Are there tax consequences of transferring commercial property to a two member LLC?

Both members own the property jointly. Can a sch e be filed until the property is transferred.

1 Answer

  • 1 decade ago
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    You have an interesting question. Here are a few of my observations:

    1) Property tax - Depending on the state, the commercial property might be reassessed for property tax purposes on a transfer of ownership from the joint owners to an LLC.

    2) Federal income tax purposes - If the LLC does not elect to be taxed as a corporation, the transfer of the property will create a tax partnership requiring the filing of Form 1065. Under certain circumstances, an election can be made under Internal Revenue Code Section 761(a) to elect out of partnership rules. This means no filing of Form 1065 and you then can continue filing Schedule E.

    4) Some states tax LLCs as if they were corporations (KY, TX, OH, PA, etc). Some states impose an annual tax on the LLC, like CA which has an $800 mimimum tax and an annual fee which can go up to $11,750 or so.

    5) Like-kind exchanges, if anticipated, would have to be done by the LLC.

    6) Estate tax implications - You would need to assign a manager to handle your LLC responsibilities in the event anything happened to you, since the property is owned by the LLC and not by you. So it doesn't follow that your spouse or family member can just take over on your behalf.

    7) There may be some paper work with the mortgage lender with regard to the transfer. Many people don't even bother to notify the mortgage lender.

    8) Real estate transfer taxes might be applicable, depending on the state you are in.

    9) A whole bunch of other considerations, such as insurance, etc.

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