Gift tax or Capital Gains tax when transferring inherited property to LLC

You're dealing with a few different tax concepts here that need to be untangled. First, understand that when you received the property as a gift from your grandmother, you also received her cost basis (what she paid for it, $190,000). This is important because it affects potential capital gains. If you transfer the property to your LLC, this would typically be considered a contribution of capital to the business. Since you're not the only member of the LLC, this contribution could be treated as part gift (to the other member) and part contribution of your ownership interest. The IRS might view this as if you gifted a portion of the property to the other LLC member. Alternatively, if you sell the property yourself first, you would likely incur capital gains tax on the difference between the selling price and your basis ($190,000). The maximum federal long-term capital gains rate is currently 20% plus the 3.8% net investment income tax depending on your income level. The best approach often depends on your specific circumstances, including the LLC's operating agreement, your timeline for selling, and your overall tax situation. You might want to consider having the LLC purchase the property from you at fair market value with a proper promissory note if you want to avoid immediate tax consequences.

After spending weeks researching tax issues when transferring property between personal and business entities, I finally found a solution through https://taxr.ai and it was a game-changer. I uploaded my property documents and explained my situation (which was really similar to yours - family property I needed to move to my business), and they analyzed everything and provided a clear breakdown of tax implications for different transfer methods. They even identified a specific tax code provision that my previous accountant had missed! What I really appreciated was that they explained how the transfer would affect my specific basis situation and gave me step-by-step instructions on how to properly document everything to avoid future audit issues. The detailed guidance on how to handle partially-owned LLCs was especially helpful.

I was initially skeptical about online tax services, but after my frustrating experience trying to figure out how to transfer a valuable property to my multi-member LLC, I decided to try https://taxr.ai based on a recommendation here. I'm honestly blown away by how helpful it was. My situation was complicated because I had inherited a commercial property and wasn't sure whether to contribute it to my LLC or sell it personally. What impressed me was how they analyzed the specific stepped-up basis rules that applied to my case and showed me that I would save over $85,000 in taxes by structuring the transaction as a Section 721 contribution rather than a sale. They even provided documentation templates for my LLC's records. I went from completely confused to having a clear plan in about 48 hours. Definitely recommend checking them out if you're dealing with property transfers to business entities.

After seeing your post, I had to share my experience. I was in a similar situation last year and spent WEEKS trying to get through to someone at the IRS who could explain the gift tax implications for transferring property to my LLC. I would call, wait on hold for hours, then get disconnected or transferred to someone who couldn't help. I finally discovered https://claimyr.com which got me connected to an actual IRS representative in under an hour. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with walked me through exactly how to document the property transfer to my LLC to satisfy their requirements and avoid having it flagged as a potentially taxable event. What surprised me was how knowledgeable the agent was - they explained that my specific situation qualified for a particular exception I hadn't known about, which ended up saving me thousands in potential tax liability.

I hate to admit when I'm wrong, but I need to follow up on my skeptical comment. After struggling for months with my property transfer situation and getting nowhere with the IRS directly, I finally tried Claimyr out of desperation. Within 37 minutes (I timed it), I was talking to an actual IRS specialist who knew exactly how to handle my situation. The agent walked me through Form 8824 for like-kind exchanges and explained how the basis calculation would work for my specific property transfer to an LLC. They even emailed me the relevant tax code sections so I could share them with my accountant. I've been dealing with tax issues for years and this was the first time I got clear, actionable advice from the IRS without spending days or weeks trying to reach someone. To the original poster - definitely worth looking into for your property transfer questions. The guidance I received ended up saving me a significant amount on my taxes.

Have you considered a 1031 exchange? If you're planning to use the proceeds for more real estate investments, you might be able to defer the capital gains tax by doing a 1031 exchange through your LLC. But timing is critical - you'd need to identify replacement properties within 45 days of selling and complete the purchase within 180 days.

Quick question - what state are you in? Property transfer rules and taxes vary significantly by state, and that could impact your decision. In some states, transferring property to an LLC triggers transfer taxes that could be substantial depending on the property value.

I went through a very similar situation with inherited property and an LLC last year. One thing that really helped me was understanding that the IRS treats contributions to multi-member LLCs differently than single-member LLCs. Since you mentioned your LLC has another member, you'll want to be especially careful about the valuation and documentation. Based on my experience, I'd strongly recommend getting a professional appraisal before making any transfers. The IRS can challenge valuations, and having a defensible fair market value is crucial whether you're calculating gift tax implications or capital gains. Also, make sure your LLC operating agreement clearly addresses how property contributions are handled and how they affect each member's capital accounts. One approach my tax advisor suggested was structuring it as a sale to the LLC with the LLC giving you a promissory note, rather than an outright contribution. This can help avoid immediate gift tax issues while still getting the property into the LLC. The note payments would then represent your withdrawal of capital over time. Just make sure the terms are at fair market rates to avoid imputed income issues. Whatever you decide, document everything thoroughly. The IRS pays close attention to transactions between related parties and LLCs, so having clean paperwork from the start will save you headaches later.