Property sales to llc

[Dak2019]

What is the tax implications to sell personal property to my Limited Liability Company ? , Is this legal? , A question from my client . 

[abctax55]

SMLLC or MMLLC?

[Dak2019]

It’s SMLLC. The husband wants to sell the property to his wife LLC , money is passing 

[IRonMaN · Accepted solution]

Why would he sell it instead of just transfer it to the wife?  Or is someone on Santa's naughty list and there will be no gifts this year?

[Dak2019]

The wife is a realtor and received a big commission in her LLC so what to purchase her husband property to have a reduced liability   

[TaxGuyBill]

How is purchasing a property going to lower taxes?

[Dak2019]

They are see it as an expense to the LLC 

[abctax55]

And exactly how is the husband going to report this 'sale of property' on his (their?) tax return?

[IRonMaN]

Big commission for the wife, big expense for the husband.  That sounds like 2+2=7.5 type math.

[TaxGuyBill]

What exactly is this "property"?

I had originally interpreted you meant "real estate", but perhaps I am mistaken.

[Dak2019]

Okay the wife open an LLC due to a commission of $187k they want to know if by selling an apartment in the husband ‘s name to the LLC for $160k would reduce the tax liability for the LLC. The apartment would have a $55,000 gain on their taxes. Can this work or are they fooling themselves

[abctax55]

How do you propose to write off $ 160,000 spent on REAL Estate all in one year?

There's a lot of "fooling" going on here...........  🤣

[TaxGuyBill]

Buying real estate would NOT be a deduction for the wife's business.  What makes you think it would be a deduction?

Depending on what the apartment is used for, it MIGHT be able to be depreciated over 39 years (or maybe 27.5 years), but that depends on what the wife's business is doing with the apartment.

[Dak2019]

The client ask if it would be considered an expense for the LLC as the LLC is buying the apartment to rent. It’s my first time dealing with this situation so this the reason for asking 

[TaxGuyBill]

If a business purchases large assets (generally over $200, or over $2500 if you make the De Minimis election) that are used for more than one year for that business, the cost is generally depreciated over many years.  In the case of renting out Residential Real Estate, that cost is spread out over 27.5 years.

So no, you can't claim the full amount as a deduction.  A FULL YEAR of using it for business would only get a depreciation deduction of 1/27.5th of the cost (not including the value of any land, and a partial year of using it for business would be prorated).

[sjrcpa]

There's no gain or loss on transactions between spouses. If the SMLLC is disregarded for tax purposes the SMLLC = the wife.

Also, she would get husband's basis even if she paid more than that.

[abctax55]

Same situation/restriction if wife loans hubby money to buy piece of business equipment and charges him interest....not income to her or deduction for him.

And yes, I has *one* of those scenarios & had to look it up !

It would be a great way to manipulate S/E income...

[Dak2019]

Thank you 

[qbteachmt]

"if it would be considered an expense for the LLC as the LLC is buying the apartment to rent"

It's not Expense. It's "expenditure" of funds as Investment.

Expense, for instance, is the payment of Electricity = POOF! The money you spent is already gone, because you spent it on something that was all used up.

Investment = you trade Funds or something of Value for Funds or something of value. You invest Money into Real Estate. The Real Estate is the newly purchased Asset.

You know that buying Assets are not an expense. Now you need to teach your clients the same thing. They are confusing Cash Flow with Expense.

And also, explain that selling their own property to themselves, even under the auspices of not marital property, means they report and pay tax the gain on "his" sale, and she holds the property, now, and there was not only no deferral of her tax liability on her commission, but they added the taxable income from his gain into the tax filing for the year.