Sale of home by LLC after purchase from Employee

[JoshinNC]

LLC wishes to move employee from NY to NC for new office. NY employee needs to sell house, but will lose money (which isn't deductible). Can LLC buy house from employee at FMV (supported by appraisal) and then sell at a loss to get rid of it quickly AND deduct the loss (or is it still a non-deductible loss since it was personal property in the employee's hands)?

Thanks for any guidance!

[Burke]

Are the LLC and the taxpayer intricately related in some fashion? If not, buying a house for cash which is not the personal residence or property of the LLC, then reselling at a loss, would generate a deductible loss. If they are, related party rules come into play.

[JoshinNC]

Employee is a 2% member

don't know if that satisfies "related party" , will have to research.

If deductible, would you classify the loss as Cap loss or ordinary (I lean toward cap loss since not main trade or business)

[erchess]

I will watch this with interest

but I think that to be a related party to the LLC the employee and possibly his spouse siblings ancestors and descendants between them would have to own over 50% of the LLC Stock.

I would also think that the LLC can give him whatever it wants for the house and claim the loss. Remember they're unrelated parties so there should be no problems with the business taking the capital loss but there might have to be some declaration to the employee of a taxable fringe benefit coming out of the employer purchasing his house to help him be financially willing and able to move.

I could be wrong about all of this because I have not done anything with related parties except one installment sale between parent and child.

[Burke]

Large corps who move employees around do this all the time. However, I notice they usually have separate subsidiaries set up to handle these and the primary purpose of these subsidiaries is relocation activities. Of course, the affected employees usually have no ownership interest in the corporation, except for a little stock. And I have never done any of those corp tax returns so I do not know exactly how they handle the tax implications of the sale of the homes. Just had one move from AL to NC where the corp purchased their old house. For the TP, we used sale of personal residence rules. In the case of an LLC in which the employee is a member, I would look at any possible related party issues. If it passes that smell test, then I would definitely feel that the LLC would have to pay FMV for the house, and while the subsequent sale might be construed as a cap asset gain/loss, it would probably be short term. The fact that it was a personal residence of the former owner would have no bearing on the LLC's ownership. And I would hope that the LLC had some written policy which would be applied equitably in this regard to all key employees, or management, etc to avoid the appearance of trying to make a non-deductible loss into a deductible one.