Sale of primary residence to closely held LLC to step up basis

Forum|Forum|3 years ago
November 16, 2022
5 replies
31 views

Hi,

I have a home that's about to become a second home. It has appreciated approximately $500k. I'm thinking if quitclaim deeding it to an LLC that I setup. I might then rent it part of the year.

Is there advantage to this? I believe I can then expense property tax over $10k limit for 1040 and also deduct maintenance and depreciation?

Thoughts?

Thanks!

Best answer by Anonymous_

The strategy you outlined is simply form over substance and would violate the economic substance doctine.

See I.R.C. §7701(o)

https://www.law.cornell.edu/uscode/text/26/7701

Anonymous_Answer

Level 15

The strategy you outlined is simply form over substance and would violate the economic substance doctine.

See I.R.C. §7701(o)

https://www.law.cornell.edu/uscode/text/26/7701

rnehrbossAuthor

Level 2

Thanks for quick reply @Anonymous_.

Maybe I didn't give enought detail.

I no longer live in the home, and will turn it into a rental home. The LLC provides me libability protection etc.

Anonymous_

Level 15

@rnehrboss wrote:
Maybe I didn't give enought detail.

I no longer live in the home, and will turn it into a rental home. The LLC provides me libability protection etc.

I understand, except those details do not change the analysis and conclusion.

Mike9241

Level 15

quitclaim to LLC and it will have your tax basis. there would be no step-up to fair market value for purposes of depreciation. rental rules are complex. you could be subject to passive activity loss rules or possibly not required to report income or expenses or the expense deduction could be limited to rental income. if you eventually sell it , it may not qualify for the home sale exclusion. you have provided few details so it's best to discuss with tax pro so you know the tax consequences

Mike9241