All Forum Posts by: Holly Chan

I'm not sure there would be a way to do this. The stocks would need to be sold in order to be converted to cash to buy the real estate, which would trigger capital gains regardless of if the stocks were held by you personally or transferred to an LLC.

This transaction also wouldn't qualify for a Section 1031 exchange because that requires that real property be exchanged for other real property and stocks are not included in the definition of real property.

The only potential option could be to transfer the stocks to a self-directed 401(k), but even then you may still have to sell the stocks prior to transferring them and may not be able to directly transfer the stocks in without triggering capital gains. You would want a retirement plan expert to comment on if this option could work.

Note: this post is intended to provide limited advice and should not, and cannot, be solely relied on. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

If you are not a "real estate professional", as defined by the IRS, then all income/loss generated from rental activities is passive. Passive losses can only offset income from other passive activities. Passive losses cannot offset income from other sources, including W-2 wages. The only way for the rental loss to offset W-2 and other active income is for you to be a real estate professional. To be a real estate professional, you generally must work at least 500 hrs per year in real estate and the time you spend in real estate must exceed the time you spend in other activities (such as any other non-real estate job). Note: this post is intended to provide limited advice and should not be solely relied on. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Originally posted by @David Faulkner:

It does NOT matter that the business is in Texas, it does NOT matter that the properties are in Texas, if YOU live in CA, you earn income and pay taxes here, then you owe the $800/LLC/yr CA state franchise tax. If you have not been paying it, they will find you and they will make you pay it. You need to consult a CPA immediately on this ... I believe that they will confirm that I am correct and you may owe years of back taxes.

This is incorrect. A California LLC must file and pay the minimum $800 LLC fee only any one of the following apply:

• The LLC is doing business in California (this definition includes if property is located in CA, or if employees are being paid in CA),
• The LLC is organized in California,
• The LLC is organized in another state, but registered with the CA SOS, or
• The LLC has income from California sources

If the owner of the LLC lives in California, he/she will have to pay CA income taxes on the income from the LLC even if the LLC is not organized or doing business in CA, but the LLC as a separate entity is not required to file a CA return unless it falls under one of the above.

However, and this may be what David is referring to, if the owner or any other members of the LLC conduct business on behalf of the LLC in California, then the LLC is determined to be "doing business" in California and therefore is required to file and pay the LLC fee.