An LLC can gift property to an individual, and the transfer is legal as long as the LLC’s operating agreement authorizes it. The catch is that the federal gift tax applies only to individuals, so the IRS treats the transaction as a distribution from the LLC to its members, followed by a personal gift from those members to the recipient. The tax reporting, the annual exclusion, and the lifetime exemption all attach to the members. For 2026, each member can give up to $19,000 per recipient before any gift tax reporting is required, and the lifetime gift and estate tax exemption is $15,000,000 per person.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
How the IRS Sees the Transfer
The federal gift tax is imposed on transfers of property by gift “by any individual,” which means an LLC itself is never the donor for gift tax purposes.2Office of the Law Revision Counsel. 26 U.S. Code 2501 – Imposition of Tax The IRS looks through the entity to its owners. When an LLC gives property to someone, the transaction is recharacterized as a distribution from the LLC to its members, followed by a personal gift from those members to the recipient.
How that plays out on a tax return depends on how the LLC is taxed. Most multi-member LLCs are taxed as partnerships by default; single-member LLCs are disregarded entities. An LLC can also elect to be taxed as a C corporation or S corporation. The three paths produce very different results.
What the Members Will Owe
For a partnership-taxed or disregarded LLC, the entity generally recognizes no gain or loss when it distributes property to a member.3Office of the Law Revision Counsel. 26 U.S. Code 731 – Extent of Recognition of Gain or Loss on Distribution The member takes the LLC’s adjusted basis in that property, capped at the member’s basis in their partnership interest.4Office of the Law Revision Counsel. 26 U.S. Code 732 – Basis of Distributed Property Other Than Money Gain can still be triggered if the property is subject to a liability that exceeds the member’s basis, or if unrealized receivables or inventory are involved.
C corporation treatment is harsher. If an LLC taxed as a C corporation distributes appreciated property, the LLC must recognize gain as though it sold the property at fair market value, and it pays corporate tax on that gain.5Office of the Law Revision Counsel. 26 U.S. Code 311 – Taxability of Corporation on Distribution The member then reports the distribution as a dividend to the extent of the corporation’s earnings and profits. The same value is taxed twice before the gift to the individual is even made.
Once the property is in the member’s hands, the personal gift tax rules take over. Each member measures their share of the gift against their own $19,000 annual exclusion for 2026. If a two-member LLC gifts property worth $100,000 to one person, each member is treated as having made a $50,000 gift, and each must file Form 709 to report the $31,000 above their exclusion.6Internal Revenue Service. Gift Tax
Filing Form 709 rarely means anyone owes money. The excess simply reduces the member’s lifetime exemption, which for 2026 is $15,000,000 per person, up from $13,990,000 the year before under the One, Big, Beautiful Bill.7Internal Revenue Service. Frequently Asked Questions on Gift Taxes No actual gift tax is owed until cumulative lifetime gifts above the annual exclusion exceed that threshold. A professional appraisal at the time of the gift fixes the fair market value used for reporting.
What the Recipient Inherits
The recipient owes no income tax on receiving the property, but they take the donor’s cost basis. This is called carryover basis.8Office of the Law Revision Counsel. 26 U.S.C. 1015 – Basis of Property Acquired by Gifts and Transfers in Trust If the LLC bought a building for $200,000 and it is now worth $500,000, the recipient’s basis is $200,000. Selling later for $500,000 produces a $300,000 taxable gain.
One wrinkle: if the property’s fair market value at the time of the gift is lower than the donor’s basis, the recipient must use the fair market value as their basis when calculating a loss. This blocks people from gifting depreciated property to shift a tax loss to someone in a higher bracket.
Long-term capital gains rates for 2026 range from 0% to 20% depending on income, and higher-income taxpayers may also owe the 3.8% net investment income tax. Records of the LLC’s original purchase price, any capital improvements, and depreciation claimed carry forward with the property and drive the eventual tax calculation.
Getting the LLC’s Approval First
The operating agreement decides whether the gift is even permitted and who has to sign off. In a member-managed LLC, disposing of a significant asset like real estate typically requires a majority vote, and some operating agreements require two-thirds or unanimous approval for major transactions. A manager-managed LLC may give the manager authority over routine property decisions, but a gift of substantial value usually still needs formal member approval.
Transferring property without proper authorization exposes the person who arranged the deal to personal liability for breaching their duty of loyalty to the company. Other members can file a derivative lawsuit on behalf of the LLC to reverse the transfer or recover damages. Even in a single-member LLC, a written resolution documenting the authorization protects the member if the LLC adds members later or faces creditor claims about the transfer.
Creditor Challenges to the Gift
Giving property away for nothing is exactly the pattern creditors watch for. Under federal bankruptcy law, a trustee can reverse a transfer made within two years before a bankruptcy filing if the LLC received less than reasonably equivalent value and was insolvent at the time, or became insolvent because of the transfer.9Office of the Law Revision Counsel. 11 U.S. Code 548 – Fraudulent Transfers and Obligations Actual intent to cheat creditors carries the same two-year window.
Outside bankruptcy, most states have adopted some version of the Uniform Voidable Transactions Act. A debtor is generally considered insolvent when total debts exceed the fair value of total assets, and a debtor that has stopped paying bills as they come due is presumed insolvent. Courts weigh several warning signs when deciding whether a transfer was meant to dodge creditors:
- The LLC gave away property for little or nothing in return.
- The property went to a family member or close associate of an LLC member.
- The gift happened shortly before or after the LLC took on significant debt or faced a lawsuit.
- The LLC member kept using or controlling the property after the transfer.
If a court finds the transfer fraudulent, it can reverse the gift and return the property to the LLC’s asset pool for creditors. Before making the gift, confirm the LLC will remain solvent afterward and that no pending or foreseeable claims threaten the company.
If the Property Has a Mortgage
An outstanding mortgage complicates the transfer. Most mortgage agreements contain a due-on-sale clause that lets the lender demand full repayment when the property changes hands without written consent.10Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
Federal law exempts certain residential transfers from due-on-sale enforcement, such as transfers to a spouse or child or into a living trust where the borrower remains a beneficiary. Those exemptions apply to transfers by individual borrowers, not business entities. A gift from an LLC to an individual member does not fit the listed exemptions, so the lender can legally accelerate the loan. Contact the lender for written consent before recording the transfer.
Title insurance is a second gap. A standard owner’s policy covers only the named insured, the LLC. Once the property transfers to an individual, the LLC’s policy terminates and the new owner has no title coverage unless they buy a new policy. Some newer policy forms may extend coverage to related-party transferees, but confirm this with the title insurer before the transfer rather than after.
Environmental Liability on Commercial Land
Anyone accepting real property should know that current owners of contaminated sites face cleanup liability under federal environmental law, regardless of who caused the contamination. The statute holds “the owner and operator of a facility” responsible for response costs when hazardous substances have been released or threaten to be released.11Office of the Law Revision Counsel. 42 U.S.C. 9607 – Liability Accepting a gift of commercial or industrial property, or rural land with a history of chemical use, can leave the recipient with cleanup costs that far exceed the property’s value. A Phase I environmental site assessment before accepting the gift is the standard protection. If the LLC knew about contamination and failed to disclose it, the LLC can lose its defenses and share in the liability.
Paperwork to Complete the Gift
Three documents move the property out of the LLC and one filing makes the change public.
- A written resolution signed by the voting members that identifies the property, names the recipient, states the reason for the transfer, and records the vote. LLCs do not use “corporate resolutions”; the document should reflect the LLC’s actual governance structure.
- A deed transferring legal title from the LLC to the individual. A warranty deed guarantees clear title and defends against future claims; a quitclaim deed transfers only whatever interest the LLC has, with no guarantees. The deed must include the property’s full legal description, the LLC as grantor, the individual as grantee, and a notarized signature from the LLC’s authorized representative.
- A professional fair market value appraisal dated as close to the transfer date as possible, which supports the Form 709 reporting and rebuts later claims that the property was worth more.
The signed and notarized deed then goes to the county recorder or registrar of deeds where the property sits. Recording creates the public record of the ownership change and protects the recipient against later claims. Many counties require a transfer tax affidavit or declaration of value alongside the deed, even when no money changes hands. After processing, the recorder stamps the original deed with a recording reference and returns it to the new owner as proof of ownership.