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Transferring Real Estate to an LLC or other Entity: What about the Real Estate Transfer Tax

For many years, we advised small business clients to purchase real estate to be used in a business after the business was formed. Otherwise, if the real estate was purchased ahead of time in the personal name of the client, and then transferred later to the LLC or corporation, a second real estate transfer tax would be due. (The real estate transfer tax is due on the transfer of most real estate and is 1.5% of the purchase price or fair market value whichever is less.)

That is still good advice as there will be saving in legal fees, recording fees, etc but due to a new law, transfers from individuals to their business entity may be free from that tax if certain criteria are met, chief of which is that the ownership of the real estate and the ownership of the entity must be identical. For example, if Bob and Carol are equal owners of a piece of real estate and they also are equal owners of their LLC, the transfer of that real estate may be free of the tax. This can be highly technical and should not be done without competent legal advice. In other words, don’t try this at home!

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Elizabeth Brown