A few questions on selling old personal residence to LLC

[Turner N.]

Hello. I am in the process of quit claiming my old personal residence into an LLC to be used as a rental. This is being done in Michigan. A few questions.

1. Should I be selling for $0?
2. Is there any way that I will pay taxes on this? Should I sell for my cost basis?
3. If I were to try to sell right now, the value of the house is approx. 50% higher than when I bought it. How does this affect the other two questions?

Sorry if these are kind of vague. First time posting and have had trouble figuring out answers to both of these.

Thanks.

[Christopher Phillips]

@Turner N.

You'll need to speak with a tax professional before the transfer.

There isn't usually an immediate tax consequence. The problem is related to the "cost basis." Your costs basis becomes the value of the property at the time of the transfer. So, by transferring now, your cost basis will increase by 50% based on your current value estimate.

That will impact you down the road if you decide to sell. If you're the only owner of the LLC, it's less of an issue. It's more of an issue if you later add owners to the LLC since it will impact their cost basis.

An example. You buy for $100,000. Property value increases 50%. Then you transfer to an LLC. Your basis at time of transfer $150,000. The $50,000 is the eventually gain used for tax purposes, if nothing else changes, at time of sale...

If you add someone to your LLC it can cause problem for their gain position... As a rough example: the LLC later decides to sell at $140,000. That's a loss of $10,000. But, the LLC basis had a previous gain of $50,000 at time of transfer. Less the sales loss of $10,000 -- there is still a gain of $40,000. If for some reason you couldn't pay the taxes on the $40,000 gain, the other members of the LLC would have to pay.