How do you get paid when using an LLC to wholesale a property

This is one questioned I’ve never had answered.

When you use an LLC to put a REO under contract and you assign the LLC to your end buyer, how and when do you get paid?

I know that when you assign a contract you get paid at the closing table on the HUD-1 Form. Is that how you get paid when you assign the LLC?

are you assigning the contract to the end buyer, or selling the end buyer the entire LLC?

If the former, then the LLC has assignment income (ordinary, not capital gain), which you pay taxes on in whatever form the LLC is being taxed. Resulting cash can be distributed to members, again as per the rules for however the LLC is being taxed and whatever the operating agreement dictates.

If you are selling the entire LLC, then you personally (as owner of the LLC) would have a capital gain on the sale.

If you provide more details, I can help you with a more specific answer.

Hey Mark,

Thanks for the response. I don’t have a deal under contract as of yet. Its really more of a hypothetical.

For example purposes:

I’m making an offer on 123 Main Street.

The offer is coming from the LLC I have formed and signed myself, a representative of the LLC.

I find an end buyer to purchase the property and due to a non-assignability clause in the contract, I have to sell the LLC to my end buyer so that way the same entity is closing on the property.

What would be the easiest way to get paid when selling the LLC?

by check.

you’re selling personal property (membership interest in the LLC). Draw up a contract/ bill of sale. He writes you a check.

He will have to file paperwork to change resident agent, draw up a new operating agreement, open a new checking account, etc. He will need a new EIN for the LLC.

You have a capital gain. Your basis is whatever cost you put into forming the LLC and running the business up to that point (net equity). Note that you are selling a business, so form 8594 is required on BOTH returns (yours and his).

The profit/loss up to the date of sale ends up on your tax return (and figures into your basis). Everything after the date of sale ends up on his 1040 via whatever means he is taxing the LLC.

Note that the LLC has no income on the assignment of the contract. The LLC didn’t sell anything. You personally sold your membership interest in the LLC. Whatever becomes of the contract owned by the LLC is on his clock.