Capital Gains on home sale

Forum|Forum|6 years ago
September 16, 2019
11 replies
113 views

Hi,

We recently moved out of our primary home and planning to rent it out. Also, will put it up for sale soon after or rent-to-own.

In the meantime, I am planning to move it under an LLC using a quitclaim deed. Same members in LLC as the current title, my wife and I.

Scenario:
Say, our original purchase prices in 2010 was 400K, I do a quit claim to LLC for $1. During next text year, we take depreciation of say, 15K. Later, after a year or so, we sell it for 450K.

So, which one will we (our LLC) be taxed in the following tax year on capital gains tax ?
a) 450K - 400K (original purchase price) + 15K (depreciation) = 65K Capital Gains
b) 450K - 1 (cost to LLC) = 499,999 capital gains

Thank you.

Best answer by Anonymous_

Before you deed your house to an LLC, you should consider the home sale exclusion (Section 121) if you are planning to sell the house in the near future.

You do not want to jeopardize the status such that you do not qualify for the exclusion from gain on a future sale of the property. Only disregarded entities potentially qualify for the exclusion and multi-member LLCs are not disregarded entities.

See https://www.irs.gov/taxtopics/tc701

Anonymous_Answer

Level 15

Before you deed your house to an LLC, you should consider the home sale exclusion (Section 121) if you are planning to sell the house in the near future.

See https://www.irs.gov/taxtopics/tc701

Critter

Level 15

I agree ... there is absolutely no reason to put the property in an LLC ... and if you still have a mortgage on the property it could cause issues with the bank. All you really need it to alert your insurance company of the change of use and keep sufficient coverage on the property ... this will do much more for you than an LLC anyday with much less paperwork.