Trading LLC Equity with partners in multiple ventures

3 Replies

Hi All!

I have a few investment properties in separate LLCs with the same partner.

Question Up Front:

Is it possible to exchange shares or stake in our LLCs to each other?

For example, we both own 50/50 in entity A and B, but want to go 100/0 and 0/100 in each entity.

I’m trying to find a way to transition from my W2 job to full time real estate investments, and finding that income from the partnership (or lack there of) is playing a role.

This may be my lack of tax knowledge, but As I understand taking out money from a partnership can lower your basis in the property (or the entity), therefore not being a great long term strategy.

Whereas if you have full ownership of the property, you can take that income and have it taxed at your normal income rate.

Any advice out there on this situation?

Thanks!

Originally posted by @Evan Haag :

Hi All!

I have a few investment properties in separate LLCs with the same partner.

Question Up Front:

Is it possible to exchange shares or stake in our LLCs to each other?

For example, we both own 50/50 in entity A and B, but want to go 100/0 and 0/100 in each entity.

I’m trying to find a way to transition from my W2 job to full time real estate investments, and finding that income from the partnership (or lack there of) is playing a role.

This may be my lack of tax knowledge, but As I understand taking out money from a partnership can lower your basis in the property (or the entity), therefore not being a great long term strategy.

Whereas if you have full ownership of the property, you can take that income and have it taxed at your normal income rate.

Any advice out there on this situation?

Thanks!






Each partner can buy out other partner to achieve what you are looking to get at. Read Rev rule 99-6. But partnership redemption might be better so need more details. 

Taking distribution doesn’t decrease the basis of the asset for the partnership but your outside basis in the partnership. It has nothing to do with long term strategy. But if you basis goes down to 0, your losses will be limited.

Full ownership vs being in the partnership has no impact in the taxation. I think there is huge gaps in your understanding. If you want me to understand this better, let me know. I can explain this over the phone. 

 

Hi @Ashish Acharya , Thank you so much for the explanation. I've had it explained to me before, and as you stated, incorrectly. My understanding was that when distributions were taken, that it resulted in a new adjusted basis. And at time of sale, that would be taken into account.

Do distributions or "paying yourself" through distributions year over year have any effect on capital gains at the time of sale?

I've been very interested in how I could transition to managing my 40 units and paying myself through the partnerships, and I've been told that Guaranteed Payments may be the best option from a tax perspective. I'd be interested to get your thoughts on that also.

Thanks!

Originally posted by @Evan Haag :

Hi @Ashish Acharya, Thank you so much for the explanation. I've had it explained to me before, and as you stated, incorrectly. My understanding was that when distributions were taken, that it resulted in a new adjusted basis. And at time of sale, that would be taken into account.

Do distributions or "paying yourself" through distributions year over year have any effect on capital gains at the time of sale?

I've been very interested in how I could transition to managing my 40 units and paying myself through the partnerships, and I've been told that Guaranteed Payments may be the best option from a tax perspective. I'd be interested to get your thoughts on that also.

Thanks!

Paying yourself has no basis adjustment on your assets. From tax perspective. There might be other better way to pay yourself via management company that might potentially reduce your taxes. Again, needs to be discussed with your tax advisors.