Authority and Documentation
Before listing LLC-owned property, verify three things: the LLC is in good standing with the New York Department of State (biennial filing current), the operating agreement authorizes the sale (or the members consent), and the person signing has documented authority. Your attorney prepares or verifies a member resolution or manager authorization for the sale.
The listing agreement, contract of sale, and deed are all executed in the LLC's name by its authorized representative — typically formatted as 'LLC Name, by [Name], Member/Manager.' The title company will require copies of the operating agreement and authorization documents as part of the closing process.
Multi-Member LLC Complications
Multi-member LLCs introduce complexity when members disagree about selling. The operating agreement should specify the approval threshold — majority, supermajority, or unanimous consent. If the operating agreement is silent, New York LLC law provides default rules that may not match the members' expectations.
If members cannot agree, options include one member buying out the others, a partition action (similar to co-owned property), or dissolution of the LLC. Mediation is often the most cost-effective path to resolution. If you are considering forming an LLC to hold property with others, ensure the operating agreement clearly addresses the sale process.
Tax Considerations
LLCs are pass-through entities for tax purposes (unless they have elected corporate taxation). This means the gain from selling the property passes through to the members' personal tax returns in proportion to their ownership interests. Each member's taxable gain depends on their individual basis, which includes their initial contribution, share of any mortgage, and prior depreciation deductions.
Depreciation recapture is taxed at a higher rate (25 percent federally) than long-term capital gains. If the LLC has been depreciating the property, the recapture component can significantly increase the tax bill. Work with a tax professional to calculate each member's expected tax liability before closing.