Should I sell my primary home to LLC in which I am partner and rent it back until I find new primary home. My goal is to use the sell gains of my current place as down payment for new home. I have put contingent offers but it didn’t work out. I would like to avoid situation where I sell my current place before finding new one as I am looking in same school district.
I guess you could do that IF the LLC Partnership can afford to buy it and IF you sell it for the FMV and IF this arrangement doesn't change your personal credit worthiness for a new mortgage ... ask your lender about this situation.
Let's break this down into three parts:
1. Should you sell your home to an unrelated business that manages rental property so you can cash out your equity and rent back while you look to buy a new home?
That sounds like it could be a good idea, provided the terms of the lease were generous enough as far as giving notice and so on. I don't think a new lender would look differently at you whether you were renting or paying a mortgage, and while having the cash in the bank for a down payment doesn't change your lender qualifications, it makes your offer more attractive to sellers in a tight market.
2. What if I sell the home to a rental business that I am part-owner of, that will keep it as a rental for other tenants after I move out?
Here, because you are a part-owner, the IRS would be concerned if you were doing things like showing losses for tax purposes, or transferring assets to the company at more or less than market value, or other kinds of improper self-dealing. I would get an appraisal, and make sure all the other partners are ok with this, and make sure the transfer is done at a fair market price. (Like, when Elon Musk used Tesla investor funds to buy his cousin's failed solar panel company at above fair market value -- don't do that!) You will, of course, pay income tax on your share of rental income, and you will pay capital gains tax whenever the LLC sells the house, so you don't want to do this for a long time. (In other words, some of the rent you pay will come back to you as taxable income so you pay twice.)
3. What if I sell the home to an LLC that I alone own, just to temporarily get it out of my name and show cash for a downpayment, and sell it after I move out.
I don't think this is what you meant, but if it is, that's probably a bad idea in lots of ways and should be avoided unless you have super attorneys and accountants to help you stay out of trouble.
This sounds to me like an illegal work-a-round to qualify for the "2 of last 5" capital gains tax exclusion. It won't work and has the potential to lead to a tax fraud investigation.
where does the LLC get the money to pay you for the sale? If you have a mortgage there is probably a due on sales clause. there can be substantial costs involved with transferring title and again when the LLC sells the property. 1/2 anty future appreciation would belong to the other partner. there are special rules for transactions between partners and their partnership. best advice: consult a tax pro.