Discussion:Tranferring Property from Scorp to LLC

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Discussion Forum Index --> Consumer Questions --> Tranferring Property from Scorp to LLC

Help123 (talk|edits) said:

27 December 2006

Situation: Client purchased land in S Corporation name in 2005. He paid all expenses for land such as interest and other costs so that he can construct building on it. Construction lasted until Dec 2006. He moved into the building on Dec 15th, 2006

In 2005, balance sheet, Land was valued at $780,000. No building yet (as it was under construction). Also, on 2005 balance sheet, there were construction expenses for 2005 of $40,000 which were capitalized.

In 2006, January, Client formed LLC. Client transferred property into LLC. Then paid all expenses through LLC for further construction of building. Building completed on Dec 15th, 2006.


(1) From tax point of view, how do you take Land out of S Corporation and put on LLC

             (a) Can I just show as sale of land and report gain or loss?
             (b) Will the FMV value of land (same as cost) have any impact?
             (c) Should I leave everything under Scorp? 

(2) Cost of land has not appreciated by much

(3) Building was never under Scorp. It was under LLC since it was completed in Dec06 Can I leave Land under scrop and Building under LLC?

Please let me know if you need more info.

Thank you in advance

Will (talk|edits) said:

27 December 2006
Here are my thoughts, I am a new practitioner:

(1) Land is taken out by distributing it to the shareholder. This is a deemed sale. TP will recognize gain on the difference in FMV and his basis. TP then makes a tax-free contribution to the LLC.

 (c) In general, it is not a good idea to have RE in an a corp, taxation on distribution of appreciated property is one reason.  

(3) You post that the S-corp paid 40k in capitalized construction expenses in 2005. This implies that at least a portion of the construction of the building was in the s-corp in contradiction to your point (3). Yes, the land and the building can be split into separate entities but will complicate ownership transfers and tax/estate planning.

Hopefully others will chime in, good luck!

William Price, EA | Portland, OR - Talk to me

Kevinh5 (talk|edits) said:

17 January 2007
Good job Will - exactly right!!!!

The further question should be asked - why is he living in it if it is owned in a business?

Will (talk|edits) said:

21 March 2007
Thanks for the back-up Kevin, was doing some research and just found your post.

Nickcpajd (talk|edits) said:

30 March 2010
I read recently, but I cannot remember where, that an S Corp can do a tax free reorganization into an LLC. Has anyone heard of this? Where can I find out more?


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