Transferring Property Into a Company
Transferring property into a company is a way of bringing assets into the business.3 min read
2. Transfer of Property to a Partnership
3. Transfer of Property to an LLC
4. What Happens if the LLC Sells the Property
5. Risk of Tax Reassessment
6. LLCs and Depreciation of Assets
7. Transferring Property to an Offshore Company
Transferring property into a company is a way of bringing assets into the business. If the company receiving the property is a sole proprietorship, it's fairly simple to transfer the property to the business. Fair market value is assigned when transferring assets into the business. One way to describe fair market value would be to say that it's the amount one entity would pay for the other's property if each held the other at a distance. A transfer of property to a corporation is more complicated than transferring it to a sole proprietorship or a partnership.
Transfer of Property to a Corporation
Transferring assets to a corporation is complex due to tax liability issues after the transfer. It's something for which you should, ideally, bring in an attorney or an accountant with experience handling corporate asset transfers. Basically, though, each asset that transfers into or out of a business has numerous tax issues attached to it. Having professional help with the transfer ensures you understand the effect it will have on your taxes, so you can plan for and minimize the impact.
Transfer of Property to a Partnership
The transfer of property to a partnership is more complicated than transferring it to a sole-proprietorship. The value of the property transferred to a partnership doesn't have to be equal to the property's fair market value, at least when specific conditions arise. The property's elected value becomes:
- The transferred asset's proceeds.
- The cost the partnership pays for the property.
- A capital gain to report on your income taxes for the party selling the property to the partnership if the elected price is higher than the original price.
Transfer of Property to an LLC
LLCs are pass-through entities. As an entity, the LLC doesn't pay taxes, but higher tax debt can pass through to the members of the LLC when a piece of property is transferred to the business. The steps for transferring property to an LLC are:
- Transfer ownership of the property by putting it in the name of your business.
- Create a written record that shows ownership of the property was transferred to the company.
- Visit the county clerk's office to record the transfer of the deed, so it shows the LLC is now the property's owner.
What Happens if the LLC Sells the Property
If the LLC decides to sell property that was previously transferred in at a rate higher than its original value, the gain is taxed as income. As a pass-through entity, the LLC doesn't pay taxes, so the members must pay the tax on the gains. Make sure each of the LLC's members understand that a tax obligation comes along with the property transfer before completing it.
Risk of Tax Reassessment
Transferring ownership of a house can sometimes trigger the county to perform a reassessment. The reassessment could end with the home's value being assigned a higher value which results in increased property taxes. The best way to know what to expect is to ask the county clerk, before making the transfer, if transferring property triggers reassessments.
LLCs and Depreciation of Assets
An LLC is able to depreciate the assets it owns, including property you transfer into it. If the property transferred into your LLC produces income, you have to pay tax on the income it generates. Depreciation reduces the tax due on income generated from the transferred-in property. IRS regulations permit an LLC to depreciate property over the period considered to be the regular lifetime of the asset.
Transferring Property to an Offshore Company
When transferring property to an offshore company, it's important to be able to show that the transfer is above board. Ideally, the property should be listed with a real estate agent who handles international transactions. The sale also needs to go through at the property's fair market value. The terms of the sale, found in the contract, must also be reasonable for a commercial transaction. While the property shouldn't be gifted to a zero-tax International Business Company (IBC), it can be gifted to a tax-free offshore company which is also called a tax free offshore private foundation. This can add the appearance of being above board because people often gift property and money to charitable organizations.
If you need help with transferring a property into a company, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.