Tax issues when transferring personal home to LLC then selling

FL · Member since 2016 · 912 posts · 107 votes

I am a small spec home builder. I build under 3-10 houses per year. My bank will lend me to my personal name enough money to build a large spec home at a much lower interest rate than my HML. I want to know what would happen if I built the house, then transferred it (along with the mortgage) to my LLC name and then sold it. I asked my bank if they would care and they flat out told me they have no rules for how long I have to own it. So despite the fact this seems dishonest at the surface, I don't believe it's breaking any rules.

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Patrick Philip
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FL · Member since 2016 · 912 posts · 107 votes
4y
Quote from @Patrick Philip:

I am a small spec home builder. I build under 3-10 houses per year. My bank will lend me to my personal name enough money to build a large spec home at a much lower interest rate than my HML. I want to know what would happen if I built the house, then transferred it (along with the mortgage) to my LLC name and then sold it. I asked my bank if they would care and they flat out told me they have no rules for how long I have to own it. So despite the fact this seems dishonest at the surface, I don't believe it's breaking any rules.

In case you're wondering why I want to do this it's because I want to show actual income on my tax return (for purposes of qualifying for future loans) rather than a personal Capital Gain.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
4y
There is no capital gain when you sell this. It is ordinary income subject to SE taxes.
Yes, you can transfer to the LLC and then sell without any tax implications.
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Patrick Philip
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FL · Member since 2016 · 912 posts · 107 votes
4y
Quote from @Ashish Acharya:

There is no capital gain when you sell this. It is ordinary income subject to SE taxes.
Yes, you can transfer to the LLC and then sell without any tax implications.

Building and selling a personal residence isn't a capital gain? Are you sure?

In fact, if I lived in it for 2 of 5 years as primary residence, then I can write off first $250,000 of Capital gains I thought. (I would have to look up those numbers to see if their exactly correct, but something like that).
If it were under my personal name, then it would be considered personal use and not business related and thus not SE taxed. Or so I would think.
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