LLC taxation

I'm wanting to establish a Nevada LLC (because Nevada has favorable corporate law and no capital gains tax). But before I do, I'm trying to gain some clarity on distributions.

I have a new real estate company and part of our capital holdings will be in investment real estate within this LLC. We have no operations per se, with our only source of "income" the money to be distributed from capital gains on the appreciated assets at sale. For example, the LLC buys a $100,000 property and sells it for $120,000, with a capital gain of $20,000.

My question is, is this $20,000 gain taxed at the capital gains rate and then distributed to the LLC owners with no other tax obligation or are these gains in some form taxed again when the owners file their taxes?

I'm also curious about what it takes to allow an LLC to be taxed separately from the owners. As I understand it, a single-owner LLC is taxed as a sole proprietorship meaning I'd have to lump in the capital gain into my other ordinary income.

You'll pay the tax on where the property is situated. You select with the proper forms if want to be taxed as a corporation.

Interesting. So you're saying that even as a Nevada LLC, if the property were held in, say, Virginia, then the capital gains tax would apply in Virginia?

I know that an LLC can opt to be taxed as an S-Corp. As an S-Corp, would the capital gains tax apply to Virginia or Nevada?

Back to being an LLC, since the LLC is paying the tax on the capital gain, my assumption is that distributions to the LLC owners would be tax exempt as the money has already been taxed. Would this be correct?

Thanks.

I don't have the time to go through a bunch of supposing. But, say you have income property in another state, that state will want a return for the income and for any capital gain on sale. Generally the only tax the LLC will pay (unless elected to be a C-corp.) will vary by state and many states (like CA) has a gross receipts tax. The LLC would not pay income tax and the results will pass through to the members who will be taxed in their state of residency or, in part, out of state if the LLC income is earned in another state. (Thus necessitating a non-resident return with credit in their state of residence.) Only if you are taxed as a C-corp would the LLC pay income taxes. But then, you have the double taxation problem.

End result is, while Nevada is not a bad idea for many reasons, in most cases there will not be a tax advantage in the way you're thinking.

Thanks for your responses and the time you've put in. That's some valuable insight.

I guess what I'm trying to figure out is, given that the type of gain on the sale of the asset is a capital gain (for the most part, long-term capital gains) and not ordinary income, would the individual owners be responsible for paying an ordinary tax rate upon distribution of the funds or would they simply pay the capital gains tax rate? The reason I ask is because the difference in rates could be as much as 30%.

Thanks for any insight into this question.

The character of the income will remain the same. There are lots of boxes to put numbers in on the K-1. Look on the internet for a 1065 form K-1 instructions.