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My business partner and I purchased a house two years ago in an LLC we co-own. He does not want the house and I want to improve and live in it. We have agreed that I would buy him out at the price that he initially paid.

I am hoping I can take him off the LLC and return his original purchase price and that none of this would trigger any tax consequences as there would be no gain or loss from his end.

Then I would like to quit claim the property into my name and do a cash out refi to have money for repairs.

Wanted to check with other folks though before going through with it and make sure there's no tax implications to any of this.

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  • Has the LLC been renting the house? Have you figured the impact of depreciation?
    – mhoran_psprep
    Jul 17, 2022 at 0:39

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There most definitely are tax implications.

First for property tax: this depends on the state. In some states (e.g.: California), the property tax is reassessed and reevaluated at current home value (regardless of the price paid, especially between related parties) at any change of beneficiary ownership. That includes, for example, a change of 50% or more in corporate ownership in the entity owning the property (e.g.: buying out your LLC partner, or quit-claiming the property from the LLC to yourself). In other states the property tax may be evaluated differently depending on whether the property is primary residence or investment.

For income taxes: this maybe a bit complicated. It may be that the difference between the FMV and the value paid/received should be considered a gift. If you're buying him out of the LLC, then the LLC becomes SMLLC, which means it is no longer a partnership (partial year 1065, new EIN, etc).

I would suggest discussing this with an attorney and a tax advisor (EA/CPA licensed in your State).

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