"Sale" of the property from personal to LLC

6 Replies

Hi All

Have a friend of a friend helping with taxes/accounting. We have a property in our personal names at closing, then afterwards we moved the deed to an LLC created some months later.

However the accountant is suggesting we create a mortgage note for the sale of the property from personal to LLC. The collateral mortgage back to us personally for wherever our personal capital gain appetite resides. It should be a note payable from the LLC to us and formalized with a filing at the county, etc. Does this make sense to others out there? On top of that even setting an interest rate in our favor.

A bit confused on this one..

So basically this means you would have to report interest income on your personal tax returns. Of course, the LLC would get an equal interest expense write-off. But, depending on your situation, the loss may not be fully deductible to the current year's tax return.

Seems to me this just moves money from one pocket to another but potentially increases your tax liability.  Bad idea.

Originally posted by @Eric Stets :

Hi All

Have a friend of a friend helping with taxes/accounting. We have a property in our personal names at closing, then afterwards we moved the deed to an LLC created some months later.

However the accountant is suggesting we create a mortgage note for the sale of the property from personal to LLC. The collateral mortgage back to us personally for wherever our personal capital gain appetite resides. It should be a note payable from the LLC to us and formalized with a filing at the county, etc. Does this make sense to others out there? On top of that even setting an interest rate in our favor.

A bit confused on this one..

This is not correct. You don't sale the property to you LLC, if you had actually sold the peopery, you have to report the gain/loss.

You just contribute property and book your asset and capital accounts at your LLC level. 


Originally posted by @Ashish Acharya :
Originally posted by @Eric Stets:

Hi All

Have a friend of a friend helping with taxes/accounting. We have a property in our personal names at closing, then afterwards we moved the deed to an LLC created some months later.

However the accountant is suggesting we create a mortgage note for the sale of the property from personal to LLC. The collateral mortgage back to us personally for wherever our personal capital gain appetite resides. It should be a note payable from the LLC to us and formalized with a filing at the county, etc. Does this make sense to others out there? On top of that even setting an interest rate in our favor.

A bit confused on this one..

This is not correct. You don't sale the property to you LLC, if you had actually sold the peopery, you have to report the gain/loss.

You just contribute property and book your asset and capital accounts at your LLC level. 

Thanks (to both above).   I thought this was odd, and a lot of running around and possibly getting things notarized unnecessarily.   Have you even heard of a suggestion like this or a situation where this does make sense?   I was scratching my head on it for sure.   

Originally posted by @Eric Stets :
Originally posted by @Ashish Acharya:
Originally posted by @Eric Stets:

Hi All

Have a friend of a friend helping with taxes/accounting. We have a property in our personal names at closing, then afterwards we moved the deed to an LLC created some months later.

However the accountant is suggesting we create a mortgage note for the sale of the property from personal to LLC. The collateral mortgage back to us personally for wherever our personal capital gain appetite resides. It should be a note payable from the LLC to us and formalized with a filing at the county, etc. Does this make sense to others out there? On top of that even setting an interest rate in our favor.

A bit confused on this one..

This is not correct. You don't sale the property to you LLC, if you had actually sold the peopery, you have to report the gain/loss.

You just contribute property and book your asset and capital accounts at your LLC level. 

Thanks (to both above).   I thought this was odd, and a lot of running around and possibly getting things notarized unnecessarily.   Have you even heard of a suggestion like this or a situation where this does make sense?   I was scratching my head on it for sure.   

 Usually doesn’t make sense unless you have very unique tax matter going on. 

Originally posted by @Ashish Acharya :
Originally posted by @Eric Stets:
Originally posted by @Ashish Acharya:
Originally posted by @Eric Stets:

Hi All

Have a friend of a friend helping with taxes/accounting. We have a property in our personal names at closing, then afterwards we moved the deed to an LLC created some months later.

However the accountant is suggesting we create a mortgage note for the sale of the property from personal to LLC. The collateral mortgage back to us personally for wherever our personal capital gain appetite resides. It should be a note payable from the LLC to us and formalized with a filing at the county, etc. Does this make sense to others out there? On top of that even setting an interest rate in our favor.

A bit confused on this one..

This is not correct. You don't sale the property to you LLC, if you had actually sold the peopery, you have to report the gain/loss.

You just contribute property and book your asset and capital accounts at your LLC level. 

Thanks (to both above).   I thought this was odd, and a lot of running around and possibly getting things notarized unnecessarily.   Have you even heard of a suggestion like this or a situation where this does make sense?   I was scratching my head on it for sure.   

 Usually doesn’t make sense unless you have very unique tax matter going on. 

Ok thanks.  Appreciate it! 

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

You've already gotten some some good answers, but I'll throw something else out to consider. An LLC member has a duty to avoid self-dealing, which this may be. Self-dealing can lead to dissolution of the LLC.