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Category: Business Law
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Experience:  Internationational Commercial Attorney
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LLC question: When collateralizing or assigning an LLC with

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LLC question: When collateralizing or assigning an LLC with an asset (real estate, stock, foreign currency) is it the value paid for the asset or the appreciated but yet unrealized value that must be declared?

Thank you for your question.

The asset should be valued at the same basis as you have in it when you transfer the asset, assuming you are transferring it in return for membership interests in the LLC. In other words, you transfer the basis in a tax free exchange to the LLC.

For example, lets say you were transferring real estate that was purchased for $6K, but is now worth $10K, to an LLC. In order to do this in a tax free manner, you would need to transfer the basis at $6k and in return receive a membership interest which is valued at $6k. The additional 4K will be stated on your capital account with the LLC.

So, in conclusion, unless you want to realize a gain and be taxed now on it, the valuation would be the amount you originally paid for it.

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