LLCs with Rental Property

LLCs with Rental Property

LLCs and Real Estate: 2 member LLC owns 2 rental properties with similar FMV [fair market value], different tax basis. 1 member exchanges her 50% LLC interest for the property with a higher tax basis and continues to rent it. The 2nd member continues to rent the property with a lower tax basis but in the same LLC name. This is treated as thus a disregarded entity on her personal tax return, Form 1040, Schedule E. Do both report their gain in the year they take the 2 properties?


The facts are a bit confusing but it sounds like you have two investors (members) that own a limited liability company (LLC) which owns two rental properties. It sounds like the two membes wanted to go their separate ways so each takes a separate rental property. You might consider dividing the LLC into two separate LLCs first and then swapping membership intersts. That might avoid having either member personally in t chain of title for the real estate which might limit liability. The tax consequenes of this would reqiure additional data (mortgages?) and research to determine if there is any tax triggered on the transaction. Who contributed each property and with waht basis and how long before the division/dissolution of the LLC? Or instead did the LLC purchase the properties? There are Revenue Rulings describing how you treat the tax consequences of a two member LLC (was it taxed as a partnership as is likely?) becomes a one member LLC. If under that ruling there is deemed to be a distribution of property then a tax cost might be incurred on the transaction. However, there is clealry an economic difference due to the different tax basis in each of the properties. You need to review the transaction with business/real estate counsel before te distribution as discussed above and you'll need to research the income tax consequenes. But before you do that the facts of how the transactions occured must be ascertained.

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