The tax consequences of transferring property from an LLC to an individual depend on three things: how the LLC is taxed, whether the property carries debt or accumulated depreciation, and whether you move it as a distribution or sell it to the member at fair market value. A single-member LLC transfer is usually a non-event federally. A partnership-taxed LLC distribution is often tax-free but has traps. An LLC taxed as a corporation almost always triggers tax. Everything below works from those categories.
Start With How Your LLC Is Taxed
Pull your most recent federal return. Form 1065 means the LLC is taxed as a partnership. Form 1120 means C corporation. Form 1120-S means S corporation. If you’re a sole owner and never filed Form 8832 to elect corporate treatment, your LLC is a disregarded entity.1Internal Revenue Service. Single Member Limited Liability Companies This classification controls which chapter of the tax code governs the transfer, and the outcomes differ dramatically.
Single-Member LLC: Usually No Federal Tax
A single-member LLC that hasn’t elected corporate status is a disregarded entity for federal income tax purposes.1Internal Revenue Service. Single Member Limited Liability Companies The IRS already treats you and the LLC as the same taxpayer, so moving property from the LLC into your personal name is not a federal taxable event. You still need to deal with state transfer taxes and record a new deed, but the federal side is clean.
Partnership-Taxed LLC: Distribution Rules
For multi-member LLCs taxed as partnerships, distributing property is the most common way to move it to a member, and Subchapter K handles it more gently than most people expect. The partnership itself recognizes no gain or loss on the distribution.2Office of the Law Revision Counsel. 26 US Code 731 – Extent of Recognition of Gain or Loss on Distribution The receiving member generally doesn’t recognize gain either, unless cash (or deemed cash from debt relief) exceeds the member’s outside basis.
Outside basis is your adjusted tax basis in your LLC interest: your capital contributions, plus your share of profits and additional contributions, minus distributions already received and your share of losses. As long as the value of what you take out doesn’t push you past that number, you don’t owe tax on the distribution itself.
The Property Takes a Carryover Basis
Property you receive from the LLC comes to you at the LLC’s adjusted basis in it, not at fair market value.3GovInfo. 26 US Code 732 – Basis of Distributed Property Other Than Money There’s a ceiling, though: your basis in the distributed property cannot exceed your remaining outside basis after any cash in the same transaction.
If the LLC’s basis in a property is $200,000 but your outside basis is only $150,000, the property comes to you with a $150,000 basis. You owe no tax now, but when you later sell, your gain will be measured against the lower number. The tax is deferred, not erased.
Liquidating Distributions
When an LLC dissolves and distributes everything to members, the same general rule applies: no gain is recognized solely because of the distribution.2Office of the Law Revision Counsel. 26 US Code 731 – Extent of Recognition of Gain or Loss on Distribution A member can recognize a loss on a liquidating distribution, but only if the distribution consists entirely of cash, receivables, and inventory worth less than the member’s outside basis. State dissolution filings, creditor notice, and title transfers still have to happen, and they carry their own legal consequences even though they don’t change the federal tax result.4The Tax Adviser. Liquidation of an LLC
Debt Is Where the Surprises Happen
If the property carries a mortgage you assume, or if the distribution otherwise reduces your share of the LLC’s liabilities, the IRS treats that reduction as a cash distribution to you.5Office of the Law Revision Counsel. 26 US Code 752 – Treatment of Certain Liabilities If that deemed cash exceeds your outside basis, you owe capital gains tax on the excess even though no money changed hands.2Office of the Law Revision Counsel. 26 US Code 731 – Extent of Recognition of Gain or Loss on Distribution This is the most common blindside in leveraged real estate transfers. If the property has a mortgage, run the deemed-cash math before you move anything.
Selling the Property to a Member Instead
The LLC can also sell the property to a member at fair market value. The LLC reports gain or loss as it would on any sale, measured against the property’s adjusted basis.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses That gain flows through to all members on their K-1s in proportion to ownership, so members who aren’t buying still pay tax on their share.
Because the buyer is also an owner, the IRS looks hard at the price. A qualified independent appraisal protects both sides; without one, the IRS can recharacterize the deal.7Internal Revenue Service. Sales and Other Dispositions of Assets
Loss Disallowance for Majority Owners
If the LLC sells the property at a loss to a member who owns more than 50%, the related-party rules disallow the loss entirely.8Office of the Law Revision Counsel. 26 US Code 267 – Losses, Expenses, and Interest With Respect to Transactions Between Related Taxpayers The LLC can’t deduct it, and the other members get no benefit. The buying member can later offset a future gain on the property by the disallowed amount, but if the property keeps declining, the loss is permanently gone.
Selling Below Value
If the LLC sells to a member for less than fair market value with the intent to confer a benefit, the IRS treats the transaction as part sale and part gift.7Internal Revenue Service. Sales and Other Dispositions of Assets The gift portion runs into the gift tax rules discussed below.
Depreciation Recapture on Rental and Commercial Property
If the LLC has been depreciating the property, gain attributable to that depreciation is recaptured at a higher rate when the property is sold. For real property, unrecaptured Section 1250 gain is taxed at a maximum federal rate of 25%, versus the usual long-term capital gains rates of 15% or 20%.9Office of the Law Revision Counsel. 26 US Code 1250 – Gain From Dispositions of Certain Depreciable Realty10Internal Revenue Service. Capital Gains, Installment Sales, Unrecaptured Section 1250 Gain
In a sale from the LLC to a member, recapture hits now: the portion of gain equal to accumulated depreciation is taxed at up to 25%, with the rest at regular capital gains rates. In a partnership distribution, recapture potential follows the property into the member’s hands and triggers when the member eventually sells. If you’ve claimed $200,000 of depreciation over the holding period, that entire amount is potentially exposed to the 25% rate at the next taxable event.
LLCs Taxed as Corporations: The Harsh Case
If your LLC elected C corporation treatment, distributing appreciated property forces the LLC to recognize gain as if it sold the property at fair market value, with no actual buyer and no cash coming in.11Office of the Law Revision Counsel. 26 US Code 311 – Taxability of Corporation on Distribution The LLC pays corporate income tax on that gain. The receiving member then treats the property as a dividend, taxable again at the individual level. The same appreciation is taxed twice.
With an S corporation election, the tax is single-level because of pass-through status, but the entity-level gain on the distribution still flows through to all shareholders proportionally. Owners who received nothing end up paying tax on gain attributable to property they never got.
For corporate-taxed LLCs, a straightforward sale to the member at fair market value is often cleaner than a distribution, because the LLC at least receives cash to cover its tax.
Gift Tax When the Transfer Is Below Value
If the LLC transfers property to someone without receiving fair value in return, the IRS may treat the shortfall as a gift from the LLC’s members to the recipient, based on each member’s ownership percentage. For 2026, the annual gift tax exclusion is $19,000 per donor per recipient.12Internal Revenue Service. What’s New – Estate and Gift Tax Amounts above that must be reported on Form 709.13Internal Revenue Service. Gifts and Inheritances Excess gifts also eat into the lifetime unified estate and gift tax exemption, which is $15,000,000 for 2026.
Capital Gains Rates and the NIIT
Whenever gain is recognized — on a sale by the LLC, on a distribution that exceeds basis, or later when the member sells distributed property — federal rates depend on holding period and income. Property held longer than a year qualifies for long-term capital gains rates; one year or less is taxed as ordinary income.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses High-income taxpayers also owe the 3.8% Net Investment Income Tax on capital gains above $200,000 (single) or $250,000 (married filing jointly) in modified adjusted gross income.14Internal Revenue Service. Questions and Answers on the Net Investment Income Tax Those thresholds don’t adjust for inflation. Stacked together, a high earner selling depreciated real estate can face 20% long-term rates, the 3.8% NIIT, and 25% on the recapture portion, before state tax.
State Income Tax and Transfer Tax
Federal rules are only half of it. States tax capital gains at their own rates, often as ordinary income, with top rates ranging from under 3% to over 13%. A few states have no individual income tax. Where the property sits and where the member lives may be different states, which can create filing obligations in both.
Real estate transfers typically trigger state or local transfer taxes based on sale price or assessed value, running from a fraction of a percent to around 2% in high-cost areas, sometimes with county and city layers on top. Some jurisdictions exempt transfers between an LLC and its members or transfers incident to dissolution; many don’t. Check the statute for the state and county where the property sits before you record the deed.
Check the Operating Agreement Before You Move
The operating agreement controls the procedural side: whether members must vote to approve the transfer, whether anyone holds a right of first refusal, and how fair market value is determined. If the agreement is silent, your state’s default LLC statute fills the gap with generic rules that rarely contemplate valuation disputes or how tax liability from the transfer is allocated among members.
Amending the agreement before the transfer is cheaper than litigating after it. For real property, the agreement should require a qualified appraisal, spell out how any resulting tax liability is allocated, and specify the approval process. These provisions protect the member leaving with the property and the members who remain.