Selling LLC with property in it or sell property by itself?

Question

Recently it was brought to my attention that instead of selling an apartment complex as an individual asset, you can sell the LLC which own that asset and avoid or at least significantly reduce what you owe in taxes. It was explained that this is not illegal but just taking advantage of existing tax laws. Any input would be great.

Tom Gimer · Answer

@Charles Carillo raised one issue.

The other is attempting to save money on transfer taxes by purchasing the business via an unrecorded agreement rather than the land via a recorded deed.

You'll want to look into whether there are any existing "controlling interest" statutes implicated in the jurisdiction where the property is located. These laws essentially state that if you sell a controlling interest (the % is defined in the law) in a business that owns real estate then the transfer taxes are still due... and collectible once discovered.

So see how this plays out. You as the buyer think you are saving 50% of the transfers by structuring things this way (assuming buyer and seller split transfers according to local customs)... and years later the state discovers the ownership change and suddenly you're responsible for 100%.

Charles Carillo · Answer

@Gabe Belloli

Selling an LLC that owns the complex vs. selling the complex itself is an advanced strategy and should only be performed by an experienced investor with competent legal consul. The goal of this process is for the new owners to avoid having their property taxes reevaluated with the new sale price. It is very normal for property taxes to increase when a complex is sold; especially one that has been owned by the same owners for 10+ years. You are also purchasing a LLC that may have potential previous/future legal exposure; compared with starting a new LLC when you purchase a property. Again, speak to your lawyer and title company before doing this.

Selling LLC with property in it or sell property by itself?

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