deed tax

LLC Membership Interest & Transfer Tax in a 1031 Exchange

Transfer Tax in a 1031 Exchange

What if you own a property in a single member LLC and you’re approached by a potential purchaser who does not want to buy the land, but wants to buy your single-purpose LLC that owns the land.

Questions to Ask

The first question to ask is why does the buyer want to purchase your LLC as opposed to purchasing the land itself?

The answer may hinge on the fact that when you assign the membership interest in the LLC there's no deed recorded. Therefore, the local tax assessor may not be aware that there's even been a sale of the property.

Transfer Tax

Some questions arise as to whether or not that may violate the local states rule with regard to transfer tax.

Many states have broadened the language that applies to an instrument that transfers title to encompass both deeds, as well as other instruments that transfer the property.

So a seller may still have a statutory obligation to pay transfer tax even if they don't transfer the property by deed. By circumventing the normal closing process they may still have the obligation to pay that transfer tax.

If you're going to do this kind of transaction you may want to extract from that buyer an indemnity to protect yourself from any liability for your failure to pay the transfer tax.

Further, there are all kinds of questions about whether or not a conveyance by an assignment of the membership interest still allows you to convey the property and do a standard 1031 exchange.

Consult Your Tax Advisor

You may need to consult with your tax advisor and your attorney to make sure that your sale of the membership interest does not make it difficult for you to do a 1031 exchange.

  • Start Your Exchange: If you have questions about LLC membership interest, transfer tax, or other 1031 exchange issues, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Minnesota Deed Tax & Transfer Tax in a 1031 Exchange

In this 1031 FAQ video, Jeff Peterson talks about Minnesota deed tax and transfer tax in a 1031 exchange. Watch more 1031 educational videos here.

  • Start Your 1031 Exchange: If you have questions about Minnesota deed tax, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved