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mckeecpa
mckeecpa, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 21
Experience:  Over 10 years of tax practice
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I have 2 LLCs and I want to transfer property to one LLC ...

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I have 2 LLCs and I want to transfer property to one LLC for liability protection. One LLC is a parent LLC and the other is a subsidiary of the parent LLC.
The parent LLC is the sole managing member of the sub LLC. The sub LLC is also a managing member of the parent LLC. The parent LLC has 4 managing members of which I am one.
I own a parcel of land in FL and I, as an individual, am the sole owner of the parcel. I would like to transfer all ownership rights to one of the LLCs.
> I will not be getting anything in consideration for the transfer
> My share of the LLC will not increase by virtue of the transfer
> The property will be owned equally by the other member's of the LLC
> The property is worth $25K
> The parent LLC is being taxed as a partnership
> The parent LLC sells games and the sub LLC is set up to handle real estate transactions
> I am concerned with income tax, gift tax consequences, and estate tax as a result of the transfer

Which LLC should I transfer the parcel to ?
Submitted: 8 years ago.
Category: Tax
Expert:  mckeecpa replied 8 years ago.
Hi:

You can contribute the parcel to the parent partnership and on the same day, gift the extra interest in partnership to the other members equally.

By doing this, you will not pay gift tax. You can gift to each person 12K every year without paying gift tax. It also would not used up any of the donor's life time gift tax applicable credit amount. Your parcel worth 25K, the basis should be even less. 1/3 of that is below 12K.So there would not be any gift tax/estate tax issue.

The parent company is taxed as partnership. Partnership can distribute income anyway you want according to agreement. You can draw an agreement stating profit distribution method anyway you want. That will solve any potential income tax problem when distributing profit from the partnership due to change of ownership.

The other simple way is to form a new LLC with the parcel and gift the interest to the other 3 members. It's clean and easy to track numbers.

Hope that will help.

 

mckeecpa and 2 other Tax Specialists are ready to help you
Customer: replied 8 years ago.
So you are saying that its best to transfer the parcel to the parent LLC ?

What about the sub LLC ?
Expert:  mckeecpa replied 8 years ago.

I think either a new LLC or parent LLC would work better.

My understanding is sub LLC is owned solely by the parent LLC and parent LLC is owned by 4 members including you. It would be pretty hard to allocate the equity percentage and the profit percentage from sub to parent and to members.

Can you tell me more about the real estate transactions in sub LLC(rental, develop? ) and what's the plan for the parcel( rent? develop?) From the fact I know now, I don't see much advantage to put the parcel in the sub.

Customer: replied 8 years ago.
The real estate transactions in sub LLC - development

The plan for the parcel - development
Expert:  mckeecpa replied 8 years ago.

I assume members are active on both LLCs

I still don't see much benefit to put the parcel in the subs. It's much cleaner to separate them since the ownership is different.

If you have another thought, please let me know, we can explore further.

Hope that will help.

Customer: replied 8 years ago.
"Partnership can distribute income anyway you want according to agreement."

"My understanding is sub LLC is owned solely by the parent LLC and parent LLC is owned by 4 members including you. It would be pretty hard to allocate the equity percentage and the profit percentage from sub to parent and to members."


Couldn't the complexity you mention in allocating the percentages be effectively neutralized by properly modifying the operating agreement of the parent LLC or even the sub LLC ?
Expert:  mckeecpa replied 8 years ago.
Technically, Yes. but you need to make accounting clean. You need to have separate bank accounts, separate TB and separate income statement, and modify the operating agreement of the parent company LLC. The only reason I didn't suggest is in a small company, it's easy to mix up the checks and invoices and I have seem problems arise later between even family members. Again, you could do it, with a good accountant.
Customer: replied 8 years ago.
Thank you for your answer.

I have more questions but I will stop here and I will accept your answer.
Expert:  mckeecpa replied 8 years ago.
Glad I can help.