Capital gains tax on LLC-owned inherited properties?

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Capital gains tax on LLC-owned inherited properties?

Ron Brady
Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes

My wife and I understand that we could give our home to an adult child when we pass away and that our adult child would pay no capital gains taxes on it.

But, we have multiple rental properties owned by our LLC and we want to give each our 7 children a property when we pass away. Since the properties are in our LLC, would the same capital gains tax rules apply or no? We're about to work with our estate planning attorney on this, but can someone with knowledge of the tax side of this issue weigh in please?

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Lance LvovskyPro Member
Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
3y

Assuming there is no C or S corp election in effect for the LLC, then real estate held in the LLC can receive a step up in basis just as real estate held outright can. A multi - member LLC Taxed as a partnership can have a 754 election done (complex tax election beyond the scope of this reply).

If you are doing basic vanilla estate planning, assign the LLC membership interests to a revocable living trust. You get the probate protection, privacy, control, plus the tax benefits of step up I mention above.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    3y

    Yes, LLC doesn't change the step-up basis when your pass away. You will have the same benefits.

    [email protected]941-914-7779
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  • Ron Brady
    OP
    Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes
    3y
    Quote from @Ashish Acharya:

    Yes, LLC doesn't change the step-up basis when your pass away. You will have the same benefits.

    Thank you Ashish!
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  • Ron Brady
    OP
    Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes
    3y

    @Ashish Acharya If you don't mind, I have one more question. Would the same benefits also apply to properties put into a trust? 

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  • Lance LvovskyPro Member
    Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
    3y

    Assuming there is no C or S corp election in effect for the LLC, then real estate held in the LLC can receive a step up in basis just as real estate held outright can. A multi - member LLC Taxed as a partnership can have a 754 election done (complex tax election beyond the scope of this reply).

    If you are doing basic vanilla estate planning, assign the LLC membership interests to a revocable living trust. You get the probate protection, privacy, control, plus the tax benefits of step up I mention above.

    3Reply
  • Ron Brady
    OP
    Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes
    3y
    Quote from @Lance Lvovsky:

    Assuming there is no C or S corp election in effect for the LLC, then real estate held in the LLC can receive a step up in basis just as real estate held outright can. A multi - member LLC Taxed as a partnership can have a 754 election done (complex tax election beyond the scope of this reply).

    If you are doing basic vanilla estate planning, assign the LLC membership interests to a revocable living trust. You get the probate protection, privacy, control, plus the tax benefits of step up I mention above.


     Thank you, Lance!

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  • Brian Archuleta
    Member since 2024 · 1 post · 0 votes
    2y
    Quote from @Lance Lvovsky:

    Assuming there is no C or S corp election in effect for the LLC, then real estate held in the LLC can receive a step up in basis just as real estate held outright can. A multi - member LLC Taxed as a partnership can have a 754 election done (complex tax election beyond the scope of this reply).

    If you are doing basic vanilla estate planning, assign the LLC membership interests to a revocable living trust. You get the probate protection, privacy, control, plus the tax benefits of step up I mention above.

    Family members were in an irrevocable trust and changed to an LLC partnership after the mother passed.  Can we use the step up on this year's taxes and still not have to pay capital gains until the time the home is sold?  Thank you!
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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    2y
    Quote from @Ron Brady:

    @Ashish Acharya If you don't mind, I have one more question. Would the same benefits also apply to properties put into a trust? 

    Yes, properties placed in a trust would also receive a step-up in basis when you pass away, just like properties in an LLC. This means your children would inherit the properties at their fair market value at the time of your passing, minimizing or eliminating capital gains taxes if they decide to sell. Working with your estate planning attorney will help ensure the trust is set up correctly to maximize these benefits.
    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®5240 Reviews
    WebsiteView Page
    TaxMD® | Tax Planning Software
    WebsiteView Page
    0Reply
  • Ron Brady
    OP
    Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes
    2y

    Thanks, @Ashish Acharya

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