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How To Transfer An Asset That's Owned By Your LLC Into Your Personal Name
In this audio snippet, you'll hear about:
- Tax free transfer from an individual into a corporation – you can put assets into a corp tax free, it's just a formality
- Going from corporate to personal is not so simple
- Should consult with tax advisor on this situation
- Could be construed as a dividend, and then it is taxable
Audio Transcript
Travis:
Now is that process basically the same going the other direction
as well –– an asset that's owned by the LLC, transferring it into a
personal name?
Yosef:
Oh, absolutely not. It's a great question but the answer is no. It's very interesting...
Travis:
[laughter]
Yosef:
Section 251 of the Internal Revenue Code allows what's called a tax
free transfer of property from an individual into a corporation.
So for example if a person owns a piece of property with a fair market value of $1 million but he only bought it for $100,000.
Travis:
OK.
Yosef:
Then it turns out that he can actually transfer the property to the corporation tax free.
Travis:
wow.
Yosef:
Because the way that the code interprets that is it's just a formality.
Again, the asset is still owned by the same person, it's just owned
through his corporation.
Travis:
Right.
Yosef:
However, if that person would then go ahead and redistribute that back to himself, that wouldn't necessarily be so simple.
Travis:
OK.
Yosef:
There are a number of considerations that one would have to consult
with their tax advisor on. Because here's what will happen. Let's give
you an example of this situation.
If
let's say the corporation began doing business and the corporation
actually earned money, and suddenly the shareholder elects to have a
certain distribution of property. That property may be construed as a
dividend and then it will be taxable, even though it was the exact same
property the shareholder initially contributed to the corporation.
Travis:
That's amazing.
Yosef:
That's just an illustration. You have to speak to your tax advisor each time one of these things occurs.
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