If property was sold but there was no capital gain, is it correct to assume that the money received is not taxable for 2 LLC’s?

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If property was sold but there was no capital gain, is it correct to assume that the money received is not taxable for 2 LLC’s?

I have 2 entities, both LLC’s. A few years ago I bought a property using the LLC’s and now the property has been sold. The money from the selling of the property are now in the LLC’s bank accounts. I decided to dissolve the LLC’s but before I do that I would like to know if taxes (local, state or fed) have to be paid on the money received from the selling of the property. I’m assuming that since there was no capital gain, the money received are not taxable for the LLC’s, is that right? Also, once the entities are dissolved, the money will go to the owner (me), so once I receive those money does that become taxable income? The 2 entities are registered in one state but the property was in another.

Asked on January 13, 2015 under Business Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

For a definitive answer, speak to a tax professional in your state in detail about what you hope to accomplish and let him or her guide you--tax planning is one of the most technical and complicated areas out there.

That said, generally, if the owner of property does not receive an actual gain on the sale of it--for an oversimplified example, sells it for exactly what he or she bought it for--there is no income and thus no income tax, though some states do impose certain transaction fees or taxes in some cases. A considerable difference in your situation will therefore come from whether your LLCs were pass-through entities for tax purposes (e.g. partnership treatment, where the gains and losses flow directly to the owner(s) or member(s) and the LLC is not taxed as a separate entity, even if it files an informational return) or whether it was a non-pass-through entity (corporation treatment, where it is taxed as a separate entity):

* Pass through treatment: for tax purposes, there is no separate entity: any gain or loss on selling property goes directly to the owner(s); if they did not gain any income, they should not have any income tax.

* Non-pass-through: the LLC is a separate tax entity. If there is no income (no gain), the LLC won't have an income tax liability from the sale, but then when the money goes to the LLC's owner(s), they would have income--since they were not, for tax purposes, the owners of the property and any gain or loss therefore, but rather received income when the LLC reverted the money to them--and have income tax liability.


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