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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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Situation: Capital aportation of real property to an LLC. The

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Situation: Capital aportation of real property to an LLC.
The house has a FMV of $500,000 and a basis of $300,000.
The house was held as an investment, for occasional use and did not generate any rental income.
The LLC's sole member is the presnt owner of the house and is considered a disregarded entity for Federal Income Tax Purposes.

What are the tax implications federally: Does the LLC have to withhold anyhow the regular 10% rate on the Fair Market Value of the house? I understand that a capital aportation to an LLC considered disregarded is not a taxable event.

What are the tax implications in the state of California: I understand that the "disregarded" status is not so for state income tax purposes, so will there be a taxable event (FMV-Basis)? Withholding?

Thank you.


Hi and welcome to Just Answer!
While the LLC is a disregarded entity - that is true for both federal and CA state income tax purposes.
The fact that the LLC is subject of ADDITIONAL CA franchise tax doesn't change that fact - income realized by the LLC is still passed to the owner - and the owner would be responsible for income taxes as if that income is received by the owner directly.
There is no income tax withholding when the property is transferred from the person to the LLC which is owned by that person.

Such transfer is not a taxable event and doesn’t trigger any income tax liability.


Thank you very much once again,

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