I have recently converted a house I bought in 1988 that was my principal residence till 2009 into a rental unit under my LLC.
How do you suggest that this conversion be recorded so that it is tax advantaged for the LLC.
Meaning, when the property gets sold at some future date the LLC does not get hit with capital gains that is non-existent.
I am thinking of cost basis of the property circa 2009, what should it be?
Since it was a principal residence up until then no depreciation was taken or reported over the 20+ years; there were some improvements done since the house was originally bought; the market value and also the assessed value have gone up and down with the market, at any rate market values are irrelevant – what then would be proper accounting for the property in the books? Would appreciate if you would enlighten me
Fantastic Question Shaw!
Long story short, for the time being and in recent years, one could sell their residence for Tax Free Profit. There were some guidelines and limits. For example, a single person was limited to 250k profit and married was limited to 500k. Many investors were using this one tax strategies to generate big chunks of tax free cash about every 2 years.
Odds are, there is a time limit on such a beautiful tax strategy. This date I am not sure of and will have to check with my CPA, and I recommend you to do the same.
As far as the LLC, there are a number of variables to factor including how you are reporting the activity of your LLC. Are you reporting it as a sole proprietorship for tax purposes?
If not, you might be able to sell your residence to your LLC and get “tax free profit” on paper and start your LLC off with a high cost basis.
Either way, please get an expert real estate investor CPA to give you a very precise laser focused to your situation answer and solution.