Capital gains tax rules on transfering rental property into LLC
Can rental real estate which was originally purchased as
personal residential property be transferred over to a
Limited Partnership (in the business of real estate and
other rentals), to avoid paying some of capital gains taxes
in the future?
Here is the situation: I bought this property as personal
residence about 6 years ago for $180K. It was turned into a
rental 2.5 years ago, and is currently worth about $350K.
If I sold this property today, I could claim a capital gains
exclusion on this property as a personal residence.
However, since I'd like to keep the property, I was
wandering if it was possible to transfer this property to a
LLC that would be created for this purpose to "lock in" the
capital gains. That is, would the IRS consider this
transfer as a transaction equivalent to a sale. If that is
so, then $170K of the gain would be subject to a capital
gains exclusion, and the tax basis of the rental would be
$350K.
If that is a legitimate strategy, then would the mortgage on
the rental property have to paid off. BTW, the property is
located in California.
-Contributions to a partnership carry over basis from the
partner to the partnership. If you want to exclude gain on
a sale of the home you have to actually sell it. There is
no such thing as a deemed sale.
-Obviously a bonafide sale t