Selling Primary Residence to LLC for Large Profit

5 Replies

Hi all,

First post! New to the real estate world and trying to maximize profits from the beginning... I appreciate the help!

I currently own 1 single family property and have almost reached the 2 year mark. I have been renting 3 bedrooms individually since the first week I purchased the house. The house is located in a great location with high rental demand. My vision is to rent the home for about 10 years (or longer if there is still demand).

My thought was to sell the home just after the 2 year mark for a substantial profit to an LLC that I will create. The market value for the neighborhood is already about 60-80k higher than my purchase price. This would allow me to raise the cost basis of the house, and I could move out and rent the house fully. At the same time, I would purchase another property, live-in and rent for 2 years and repeat the same process. I would continuously take advantage of the capital gains tax exemption every two years, while also building my rental property portfolio.

Any issues in doing this? Would this be advantageous or not?

@Tim Hendrickson How would selling your property to your LLC "raise the cost basis" here? What do you mean by "raise the cost basis"?

Not an arms length’re not going to want the penalties if you try it.

There is no change in cost basis. 2nd an LLC is a pass-through entity, meaning all profits/income pass through to your individual tax return. You can move out without shenanigans, and when you decide to sell (after having the property rented out 2 out of last 5 years) 1031 exchange into another property.

Do You own the property free and clear?

@Tim Hendrickson , related party basis shifting - no bueno!  You don't get to pass go with this one.

Instead finish 2 years residency then move out and rent.  Sell before the 3 years of rental mark so you still qualify for the primary residence exclusion of 2 years living in it out of the 5 years immediately prior to sale.

When you do this you will 1031 exchange it.  You'll get the primary residence exclusion up to the max and the depreciation recapture will go into the 1031 exchange.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here