Can an LLC give a gift of equity to a property buyer? Legal implications?

This is a good question with some important distinctions. An LLC is a separate legal entity from its owner, and generally, a business entity can't give a "gift" in the traditional tax sense that individuals can. What's actually happening here is that the LLC is selling property below market value. The IRS could potentially view this as two transactions: 1) a sale at fair market value and 2) a disguised gift from the LLC owner (your friend) to you of the difference. This could trigger gift tax considerations for your friend personally, not the LLC. Since your friend is married filing jointly, they have an annual gift tax exclusion of $17,000 per person ($34,000 total from both spouses to one recipient). Anything above that would require filing a gift tax return (Form 709), though it would likely just count against their lifetime exemption rather than requiring immediate tax payment.

I've actually used taxr.ai to solve a similar problem when I was selling a rental property from my LLC to my brother last year. I was getting conflicting advice from everyone - my accountant said one thing, and my real estate attorney said something completely different about how to handle the "discount" I was giving him. I uploaded all the documents to https://taxr.ai and got really clear guidance that saved me from making a potentially expensive mistake. It analyzed my LLC operating agreement, the proposed sale docs, and even the tax implications for both parties. It highlighted some specific language I needed in the sale contract to properly document the transaction reasons too.

I was skeptical about taxr.ai when I first read about it here, but I decided to give it a try for a somewhat similar LLC property transfer situation. Our family LLC was selling property to my son at below market value, and I was confused about gift tax implications. The analysis I got was surprisingly detailed and addressed exactly what I needed to know. It explained how the IRS looks at related party transactions through LLCs and gave me specific documentation requirements. They even identified a potential issue with our operating agreement that could have caused problems. Saved me from a major headache and probably an expensive mistake!

After struggling with this exact issue and spending WEEKS trying to get through to the IRS for clarification, I finally used Claimyr to connect with an actual IRS representative. I was shocked when I got through in less than 20 minutes after weeks of frustration. The IRS rep was able to walk me through the specific reporting requirements for an LLC selling below market value to a related party. They confirmed that yes, there are gift tax implications, but also explained exactly how to document it properly. If you need official clarification, I highly recommend using https://claimyr.com to get through to the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c - it was seriously a game changer.

I have to eat my words about Claimyr. After dismissing it, I was still stuck with my own LLC tax issue and getting desperate after being on hold with the IRS for 3+ hours over multiple days. I tried the service, and no joke, I was talking to an actual IRS business tax specialist in 22 minutes. The agent explained that when an LLC sells property below market value to someone with a personal relationship to the LLC member, the difference is indeed treated as a gift from the member, not from the LLC itself. They directed me to specific sections in Publication 541 and Publication 559 that address this exact scenario. It saved me from making a major reporting error on both my business and personal returns.

Just wanted to add my two cents as a real estate investor who's handled similar situations. The "gift of equity" terminology is commonly used in mortgage lending but has specific meaning in that context - it typically refers to family members transferring property and applying equity toward down payment. With an LLC involved, lenders may be more skeptical. I would recommend having your friend talk to both his CPA and attorney because there are multiple issues at play: 1. Gift tax reporting for the LLC owner 2. Potential income tax implications for the LLC 3. Mortgage lender requirements for documenting the transaction 4. Proper paper trail to show legitimate business purpose

Has anyone here actually consulted with a tax attorney on this? I'm in a similar situation and my tax attorney told me this was a terrible idea. He said the IRS scrutinizes below-market sales from LLCs much more closely than individual-to-individual transactions, especially if there's no clear business purpose.

I'm dealing with something very similar right now - buying a property from a family friend's LLC at below market value. After reading through all these responses, I'm realizing this is way more complicated than I initially thought! From what I'm gathering, the key issues seem to be: 1. The LLC selling below market creates a potential gift tax situation for the owner personally 2. Mortgage lenders may have issues with the LLC structure vs individual gifts of equity 3. Documentation is absolutely critical - appraisals, business justifications, proper contracts I'm curious - for those who've been through this, did you end up structuring it as a straight sale from the LLC, or did your friend distribute the property to himself first and then sell it individually? And did anyone run into issues with their mortgage lender not accepting the arrangement? Also wondering if anyone has experience with how long the IRS gift tax reporting process takes if you do need to file Form 709. My friend is worried about potential delays or complications that might affect our closing timeline. Thanks for all the detailed responses - this thread has been incredibly helpful in understanding what we're getting into!

This is a really complex situation that touches on several areas of tax law. Based on what I've seen in practice, here are the key considerations: **Gift Tax Implications**: The LLC selling below market value will likely be treated as a gift from your friend (the LLC owner) to you for the difference. Since you mentioned a $58k discount and the annual gift exclusion is $17k per person ($34k for married couples), your friend would need to file Form 709 to report the excess against his lifetime exemption. **Documentation Requirements**: You'll absolutely need a professional appraisal to establish fair market value. This protects both of you and provides the documentation needed for tax reporting and mortgage approval. **Mortgage Lender Challenges**: Many lenders have strict guidelines about gifts of equity that assume individual-to-individual transfers. With an LLC involved, you may need to shop around for a lender willing to work with this structure. Be prepared for additional documentation requirements and potentially longer processing times. **Business Purpose**: Consider whether there are legitimate business reasons for the discount (quick sale, as-is condition, avoiding realtor fees, etc.) that could justify some portion of the reduced price. I'd strongly recommend your friend consult with both a tax professional and attorney before proceeding. The rules around related-party transactions through business entities can be tricky, and proper structuring upfront will save headaches later. Good luck with your purchase!