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Loren
Loren, Attorney
Category: Business Law
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Experience:  30 years experience representing clients .
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Hello; My wife is 66 and retired. When her father in law died,

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Hello;
My wife is 66 and retired. When her father in law died, he left her a small house in North Miami. When we decided to rent it over a year ago, we formed a LLC and put the house in it as an asset (for personal protection.) We have someone that has expressed an interest in buying the house now and were told that if she sold it while it's in an LLC, she would be subject to taxes on the profits? How would that be calculated? Can she put it back in her name, then sell it without any legal ramifications? And if she can, does she pay any taxes on the sale, and if so how is that calculated? Thanks.
Thank you for using JustAnswer. I am Loren, a licensed attorney, and I will do whatever I can to answer your question and provide you excellent service.

I am sorry to hear of your dilemma. I realize how frustrating this is for you, but I believe I have information which you will find helpful.

Since you placed the property in an LLC, your wife, and any other members of the LLC, will be subject to capital gains on the sale. Your wife would have received a step up in basis when she inherited the house. Therefore, depending on the amount of time she has had the house, her capital gains could be minimal, since it is calculated on the difference between the basis and the sale price.

If she is the sole member of the LLC she could put the property back in her name without tax consequence. However, to be excluded from capital gains she would need to meet certain criteria, such as having lived in the property as a principal residence for 2 of the last 5 years.

It is my privilege to assist you.  Let me know if you need further information.  I hope I have helped you beyond your expectations in the service I have provided to you.  I am here for you.

Since this forum is no substitute for your own legal counsel, be sure to verify the information I have provided with a local attorney who is familiar with your local laws and procedures.

I am happy to answer your follow-up questions and assist you until I am able to explain the answer to your satisfaction. 

Thank you.

Loren.    
Customer: replied 3 years ago.


So you are saying that if she had the house (say) 6 years, she would pay taxes on the difference of value at the time she inherited the house up to now? How is that basis value determined?


And the LLC is in the name of my wife and me. (I am Bahamian, not American.) She was living in the house before we rented it out and I travelled back and forth as I work in a family business in The Bahamas. How does she prove that she lived there?


Finally, if we decided not to sell the house now, (or the person decides not to buy) going forward should we keep it in an LLC if we are renting it out? Or if we decided NOT to rent it anymore, should we take it out of the LLC?

Thank you, XXXXX XXXXX following up.

The 2 year requirement is calculated by months. It does not need to be 2 consecutive years. You would use whatever evidence you have to show principal residence. Voting registration, utility and other bills, tax filings, homestead elections, etc.

If you are renting it out it is best to keep it in the LLC since it is income producing and you are shielded from personal liability.

The value at the father in law's date of death is determined by historic appraisal or by the value the estate placed on during probate.

I hope this is helpful.

Loren



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