Closing an LLC and selling assets to one partner - what are the IRS tax implications?
How do I close an LLC that has never generated a profit and sell the primary asset to me as an individual? What are the IRS tax implications? A partner and I created an LLC to purchase and flip houses during COVID-19. We registered as an LLC in another state (with an S-corp election with the IRS) and bought our first fixer-upper house in 2021, intending to flip it. We made some material improvements and had some ongoing expenses which were capitalized and deducted from our tax returns using an 1120S, resulting in a loss each year for that LLC. This loss was passed to us on a K1, reducing each partner's taxes proportionately. To use round numbers, we purchased the house for $150k; we had expenses of $15k, $12k, and $10k in 2021-23. It was never put into service, so there is no depreciation. We will also not consider that the house improved in market value since this increase is minor. We will shut down the LLC after this one asset is sold or transferred to one of us. The IRS certainly has some rules about these asset transfers to avoid abuse, but it is unclear where to look. Could I sell the house to me from the LLC at the original price ($150k)? Or at the price of the house ($150k) plus the material improvements (let's say these are $20k) = $170k? Or for $1? Or another value that makes sense? What are the steps necessary?
