Discussion:Tranferring Property from Scorp to LLC

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.

Questions:

(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

(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

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

Thanks.