Transferring ownership..a taxable event?

For the tax pros in the audience. Lets say you own a rental property individually with substantial equity and unrecognized paper gain. To protect your personal assets from potential liability you decide to transfer ownership of the property into an LLC via warranty deed. Is this a taxable event thus triggering capital gains tax? Or is it simply a legal formality since no consideration was exchanged?

not a taxable event. technically you’re making an equity contribution of property to the LLC at your cost.

So, my equity contribution into the newly formed LLC would be derived from my basis in the property?

thanks for your response MCW

The basis of the property to the LLC is the same as the basis in your hands. The transfer should be for the property (deed) and an agreement to pay the loan but not formally assume it. That way the LLC picks up the property and (for practical purposes) the loan.

John Hyre

Found this topic when looking through the archives. I started setting up my LLC today and got stuck on the value of assets I was going to transfer in the “Description and agreed value of property other than cash contributed to stated capital”. Say I have a property originally bought a few years ago for $100K, with an $80K loan. It’s now worth $125K and the loan has been paid down to $75K. What figure should I use? $20K, 80K, $50K or $125K?

With 4 properties going into this first LLC, I want to get it right.


J.D. Stewart

cool ride.

you’re contributing property at a value of 100 and a mortgage at a value of 75. your net equity contribution is 25.

Thanks, Mark. I’ll use my basis minus mortgages.

J.D. Stewart

I’m in the process of getting started in rental properties, I am going to aquire an LLC for my entity but have been told that beginning LLC’s have more trouble financing then your own personal credit, my question is, which someone told me this and I wish to verify it, Can you purchase rental properties in your own name and then quick claim deed them to your LLC? I have read that transfer of ownership is illegal and grounds for lenders to want it all, now. Does a quick claim deed fall into this catergory, or is it legally possible to do? Thanks for any help,Damion

I plan to ask my attorney, as soon as I hire one.

I posted this on the financing forum but seen this post, is this basically the same thing 71 is asking?

  1. you can obtain financing inside the LLC with a personal guarantee, but you won’t get it at the local bank. you need a real lender who understands real estate transactions.
  2. quitclaim doesn’t transfer anything. to transfer property you must use a general or warranty deed.
  3. if you finance in your name, any transfer of the property violates the DOSC. However, I have never seen a loan called for this reason as long as it is performing.

What does DOSC stand for? And if my LLC has aquired a “claim” on a property what does that mean? I think I understand the warranty or general, but do I need to refinance for this? P.S. I read a lot of your posts, lol, very informative. Thanks

DOSC = Due on sale clause…

Due-on-Sale - see Acceleration Clause - reservation of lender’s right to call the loan due and payable upon sale of the property.

Acceleration Clause - a loan provision giving the lender the right to declare the entire amount immediately due and payable upon violation of another specific loan provision, commonly referred to as the Due on Sale Clause.

you can find a lender who will refi into the LLC (along with title transfer). email me offline if you can’t locate one.