Selling the LLC vs individual properties

3 Replies

On behalf of myself, not my work as an agent (thank you moderators), I'm looking for information about any consequences or considerations when selling an Ohio single man LLC with it's own tax ID that holds multiple rental properties, vs selling the properties individually. I understand the income tax considerations re: the cost basis of the depreciated properties, I've been told that property taxes might not get automatically get reviewed as they might on a direct sale, I've talked to a title officer about title search. Besides a huge reduction of paperwork, what should I know about this? I think I understand the positives, I'm looking for the unexpected twists in tax or legal. I understand this is akin to selling a company, but is there anything special about the company having been formed to hold only real estate?

@Andrea Hauserman years ago I use to think this was a good idea buying an established business with credit history tax returns etc. but after learning more I would also be buying any past legal liabilities that occurred under this company.
Plus any bad reputation this company has online or in the local community.
History of insurance claims.
And I do not know the answer to the depreciation question but if I am purchasing the company and they have already depreciated 5-10 years of a property and I cannot reset that to get the full 27.5 that would also be a major drawback.

(585) 678-6857

Great points Eddie, I wonder if there is any way to reset the depreciation- that would be a major drawback.

@Andrea Hauserman

@Eddie T. brings up a very good point about undiscovered liabilities. When you buy an individual asset, you know what you're getting. When you buy an existing business, you don't know what might be hidden in there. The seller and current owner often may not know about litigation that's about to be filed against them as well, so it's not simply a matter of disclosure. In most cases, best practices when a buyer is buying an existing business is to structure it as the sale of specific assets into a new business entity with a carefully crafted asset purchase agreement so the buyer can avoid accidentally assuming unwanted liabilities of the predecessor.

The points about avoiding some conveyance fees and tax reassessments also have merit, but in my opinion they aren't as significant as making sure to avoid undiscovered liabilities. In some cases, there's ways to structure the transaction where the current company forms new subsidiaries that are free of undisclosed liabilities, transfers the real estate into the new subsidiaries (exempt from conveyance taxes and tax reassessments), and then the fresh subsidiary is transferred to the end buyer. This sort of creativity in the deal structure can be appropriate for larger transactions involving more expensive commercial property, but may not be cost effective for individual houses because you need to hire professionals to design and carry out the transaction.

Timothy Murphy III, Real Estate Agent in OH (#SAL.2016005240)
440-941-3846

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