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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121592  
Subject: Re: Selling A LLC Date: 5/30/2013 2:44 PM
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With the added clarification that the gifts were handled quite correctly, let's get back to your questions.

What is his basis? Is it the appraised value at the time of the gifting?

He may have two different basis numbers.

For calculating a gain, his basis (and holding period) carried over from your wife's ownership. So her basis became his basis - including any depreciation taken on the property over the years. (So be sure to give him your depreciation schedule from your tax return.)

For calculating a loss, his basis is the lower of the above number or the appraised value on the date of the gift.

The bottom line here is that any gain since your wife purchased the property will be taxed to your son, but any loss since her purchase is hers, and will effectively be lost and benefit no one.

Is there any reason he should keep the LLC a year for the sake of capital gains.

No. His holding period includes the time your wife held the property. Assuming she owned the property for at least a year, it's already long-term in his hands.

Is there any benefit from dissolving the LLC somehow and selling the property as a piece of private property.

That's going to depend on the buyer.

You - or really your son - has to keep some things separate. He now owns an LLC, and that LLC owns a piece of real estate. He can sell the LLC, or the LLC can sell the real estate. Either one of these has the effect of transferring the property to the buyer. He could also dissolve the LLC, transfer the property to himself directly, and then sell the property. Frankly, I'd avoid the last one, as it involves the extra step - and expense - of transferring the property to himself just before he sells it. There's really no need for him to do that, when the LLC can just sell the property directly.

If the buyer needs financing, their lender will almost certainly want the buyer to own the property itself rather than the LLC. While you could still sell the LLC in that situation, it could make things messy. And messy is generally expensive.

(Off hand, I'd guess that you'd have to set up two settlements - one sale of the LLC to the buyer and a separate financing settlement, where the buyer transfers the property from the LLC to himself, obtains the loan money, and then sends the loan money to the other settlement transferring the LLC from your son to the buyer. These would need to close simultaneously. That would leave the buyer with an empty shell LLC and direct ownership of the property. He'd probably then transfer the property back to the LLC.)

One advantage of selling the LLC rather than the property is privacy. The transfer of the LLC is not something that would have to be recorded in the county records.

On the other hand, selling the property itself is fairly straightforward. It's just the LLC that would be selling and not your son. After the sale, your son would be left with an empty shell LLC and would probably want to dissolve it.

Should he get the aid of a local tax lawyer or tax CPA (I presume it should be local) to help him with this sale? Or would a local real estate broker do?

He probably needs all three.

The real estate broker would handle the marketing and sale of the property. He'd want a lawyer to advise on the sale of the property (if that is customary in your area), and to handle the transfer or dissolution of the LLC. Finally, the tax professional would advise on the tax implications of the transaction and prepare his tax return for this year.

The real estate agent should be local to the property. The lawyer should be in the same state as the property, or be licensed to practice in that state. The tax professional can be anywhere, but generally local to your son is the most convenient.

--Peter
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