Does contributing real property to a wholly owned LLC trigger real estate transfer tax?

Why the deed is taxable at all, and the three ways states exempt it

A real estate transfer tax attaches to the instrument that conveys title. When an owner deeds a building to an LLC that the owner formed the week before, title moves from one legal person to another, and nothing in a typical transfer tax statute treats a single-member LLC as the same person as its member. The federal election to disregard the LLC for income tax purposes does not carry over; none of the five statutes discussed here turns on federal classification. The question is whether an exemption reaches the deed and, if not, what the tax is measured by.

The five states examined here use three approaches. Washington and New York ask whether beneficial ownership is the same before and after; if it is, the deed is a mere change in form, whatever it recites as consideration. Delaware asks whether the grantor's equity interest in the entity matches the grantor's interest in the real estate conveyed. Florida has no general mere change exemption and measures the tax by consideration, including mortgage debt; Maryland measures the tax the same way but exempts listed entity transactions, including an individual's conversion of property into a single-member LLC.

The library's article on documentary transfer tax and entity changes in control covers California's exclusion for transfers that change only the method of holding title, and its article on Nevada affiliated-entity transfers covers Nevada's express exemption for a conveyance into an entity the transferor wholly owns. The five states below were chosen because their rules give different answers on the same deed.

Washington: an exemption tied to a three-year recapture

Washington's real estate excise tax defines "sale" to exclude "[a] transfer of real property, however effected, if it consists of a mere change in identity or form of ownership of an entity where there is no change in the beneficial ownership" (RCW 82.45.010(3)(p)). The statute names the case directly: the exclusion includes "transfers to a corporation or partnership which is wholly owned by the transferor" and the transferor's spouse or domestic partner or children. The Department of Revenue's rule confirms that the exemption reaches limited liability companies and other entities (WAC 458-61A-211(1)).

The rule's examples settle two points. A sole owner who deeds property to a solely owned corporation is exempt "because there has been no change in the beneficial" ownership interest (WAC 458-61A-211(3)(a)). And consideration does not defeat the exemption: where the corporation paid its owner $5,000 and agreed to make the payments on the debt secured by the property, the transfer was still exempt "[d]espite the fact that there was consideration involved" (WAC 458-61A-211(3)(b)). Washington's test is ownership, not price. Where owners contribute property and take back interests in different proportions, the transfer is taxable to the extent the grantor's proportional interest changes (WAC 458-61A-211), and the separate exclusion for transfers on which no federal gain or loss is recognized (RCW 82.45.010(3)(q)) is lost if the transfer is preceded or followed within 36 months by transfers that together move a controlling interest for valuable consideration.

The trap is the sentence that follows the wholly owned entity rule. "[I]f thereafter such transferee corporation or partnership voluntarily transfers such real property," or the transferor or family members voluntarily transfer stock or partnership interests to anyone other than the family group, a trust for the family group, or an entity the family group wholly owns, "within three years of the original transfer to which this exemption applies, and the tax on the subsequent transfer has not been paid within 60 days of becoming due, excise taxes become due and payable on the original transfer" (RCW 82.45.010(3)(p); WAC 458-61A-211(5)). The exemption for the deed into the entity is therefore provisional for three years.

The trigger is a voluntary transfer of stock or partnership interests outside the family group, with no minimum percentage stated. The condition that "the tax on the subsequent transfer has not been paid" reads naturally where the later transfer is itself taxable, such as the LLC's sale of the property; how it operates on a minority interest sale that carries no tax of its own is a question the statute and the rule do not answer in terms. The exemption is claimed on the excise tax affidavit, and the rule on collection and audit provides that a failure to provide documentation the Department requests may result in denial of the exemption (WAC 458-61A-301(9)).

New York: an exemption measured by how much ownership stays the same

New York's real estate transfer tax exempts "[c]onveyances to effectuate a mere change of identity or form of ownership or organization where there is no change in beneficial ownership," other than conveyances to a cooperative housing corporation (Tax Law section 1405(b)(6)). It separately exempts "[c]onveyances of real property without consideration and otherwise than in connection with a sale, including conveyances conveying realty as bona fide gifts" (Tax Law section 1405(b)(4)).

The Department of Taxation and Finance reads the mere change exemption as a partial exemption. Its instructions state that section 1405(b)(6) "provides an exemption from the real estate transfer tax to the extent a conveyance consists of a mere change of identity, or form of ownership or organization, where there is no change in beneficial interest," and require Form TP-584.1, Schedule F, to be completed and attached to Form TP-584 for these conveyances (Form TP-584-I (8/25)). A sole owner's deed to a single-member LLC is exempt in full. Two co-owners who deed a building to an LLC and take membership interests in different proportions are exempt only to the extent each one's beneficial interest is unchanged.

The partial exemption matters because consideration "shall also include the amount of any mortgage, purchase money mortgage, lien or other encumbrance" (Tax Law section 1401(d)), and the instructions limit the deduction for a lien remaining on the property to conveyances of one-, two- and three-family houses, individual residential condominium units, and conveyances where the consideration is less than $500,000 (Form TP-584-I (8/25)). For a commercial contribution with consideration of $500,000 or more, any portion outside the exemption is measured with the debt included, at $2 for each $500 of consideration, or $3.25 for each $500 in New York City where the consideration is $2 million or more (Tax Law section 1402(a)).

Form TP-584 "must be filed for each conveyance of real property," with the exemption box marked where the exemption is total, and the instructions require the name and identification number of both a single-member LLC and its single member (Form TP-584-I (8/25)). Nothing in the statute reopens the exempt deed if the owner later sells interests in the LLC; the later sale is tested on its own under the controlling interest rules, which the library's article on controlling interest transfer taxes covers. New York City's real property transfer tax is a separate tax with its own exemption rules.

Delaware: the same-proportion exclusion and the appraised-value floor

Delaware works by excluding instruments from the definition of a taxable "document." The exclusion that governs here reaches "[a]ny conveyance to or from an entity, where the grantor or grantee owns an equity interest in the entity in the same proportion as the grantor's or grantee's interest in, or ownership of, the real estate being conveyed" (30 Del. C. section 5401(1)n.). A sole owner conveying to a single-member LLC owns 100 percent of each and is outside the tax. Delaware separately excludes a conveyance between a parent entity and a wholly owned subsidiary entity, "provided such conveyance is without actual consideration" (section 5401(1)k.).

The same paragraph sets a holding period on the way back out. The same-proportion exclusion "shall not apply to any distribution in liquidation or other conveyance resulting from the partial or complete liquidation of an entity, unless the equity interest of the entity being liquidated has been held by the grantor or grantee for more than 3 years" (section 5401(1)n.). An owner who forms an LLC, deeds a property in, and then unwinds the structure within three years has an excluded contribution and cannot rely on the same-proportion exclusion for the distribution.

What makes a lost exemption expensive in Delaware is the measure. "Value" is the actual consideration, "including liens or other encumbrances," but where a transfer is for less than the highest appraised full value for local property tax purposes, value is that appraised value unless the parties show fair market value is lower, and then the greater of fair market value and actual consideration (section 5401(4)). A non-exempt transfer to a related LLC for little or no stated consideration is taxed on value, not on what the deed recites. The state rate is 3 percent of value, or 2.5 percent where the county or municipality has enacted its full 1.5 percent tax, and the tax is apportioned equally between grantor and grantee (section 5402(a)). A later sale of interests in the LLC is tested under Delaware's separate rule for conveyances of intangible interests (section 5401(8)), which the library's controlling interest article covers.

Florida: no mere change exemption, and the mortgage is consideration

Florida's documentary stamp tax applies to deeds and other instruments conveying real property at 70 cents (in Miami-Dade County, 60 cents plus a 45-cent surtax on property other than a single-family residence) "on each $100 of the consideration therefor" (Fla. Stat. section 201.02(1)(a)). Consideration includes "the amount of any mortgage, purchase money mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed," and where property other than money is exchanged, "it is presumed that the consideration is equal to the fair market value of the real property or interest therein" (section 201.02(1)(a)). The statute has no mere change exemption.

The unencumbered case was decided by the Florida Supreme Court in Crescent Miami Center, LLC v. Florida Department of Revenue, 903 So. 2d 913 (Fla. 2005), and then fenced by the Legislature, which stated in chapter 2009-131 that it "accepts the court's interpretation of s. 201.02, Florida Statutes, that no consideration exists when owners of real property unencumbered by a mortgage convey an interest in such property to an artificial entity whose ownership is identical to the ownership of the real property before conveyance," while it "expressly rejects any application of the court's interpretation where the facts are not comparable to the facts in Crescent" (ch. 2009-131, section 3(3), Laws of Fla.). An owner who deeds unencumbered property to a wholly owned LLC is within that accepted reading. An owner who deeds mortgaged property is not: the statutory definition makes the mortgage balance consideration whether or not the LLC assumes the loan. Whether the Department may go further on an encumbered contribution and invoke the fair market value presumption for the membership interests issued is a point the statute does not resolve in terms; the mortgage balance is the floor of the measure.

The recapture came with the same act. A "conduit entity" is a legal entity to which real property is conveyed "without full consideration" by a grantor who owns a direct or indirect interest in the entity, or a successor entity (section 201.02(1)(b)1.). If all or part of the grantor's direct or indirect interest in the conduit entity is "subsequently transferred for consideration within 3 years of such conveyance," the transfer of the interest is taxed at 70 cents per $100 of the consideration paid for the interest (section 201.02(1)(b)2.), prorated where the entity owns other assets by the share of total asset value the real property represents (section 201.02(1)(b)3.). A gift of an interest "is not subject to tax to the extent there is no consideration," and transfers of shares traded on public, regulated exchanges and certain transfers by a natural person to an irrevocable grantor trust for estate planning are excluded (section 201.02(1)(b)4., 5.). The rule applies where the first transfer to the conduit entity occurred after July 1, 2009 (ch. 2009-131, section 9, Laws of Fla.). Because no deed is recorded on a sale of LLC interests, the tax is paid directly to the Department rather than at the recorder (sections 201.02(1)(d), 201.133).

Unlike Washington's rule, Florida's taxes the later interest sale rather than the original deed, and it has no percentage threshold.

Maryland: a conversion exemption with conditions

Maryland measures recordation tax "on each $500 or fraction of $500 of consideration payable" (Tax-Property section 12-103(a)(1)). Consideration "includes the amount of any mortgage or deed of trust assumed by the grantee" (section 12-103(a)(2)(i)), and otherwise "includes only the amount paid or delivered in return for the sale of the property" (section 12-103(a)(2)(ii)). The state transfer tax follows the recordation tax exemptions discussed below "to the same extent" (section 13-207(a)(9), (10), (18)).

Maryland's exemptions for entity transactions are drawn around business entities. A transfer between "a parent business entity and its wholly owned subsidiary business entity" is exempt where the parent is an original owner of the subsidiary, or became one by gift or bequest from an original owner, and the transfer is for no consideration, nominal consideration, or consideration that "comprises only the issuance, cancellation, or surrender of the ownership interests" of the subsidiary (section 12-108(p)(2)(i)). "Business entity" means a limited liability company, corporation, limited partnership or statutory trust (section 12-108(p)(1)(ii)). An individual is not a business entity, so this exemption does not reach an individual's deed to a single-member LLC.

The real estate enterprise exemption is narrower. A transfer "from the individual or individuals conducting a real estate enterprise to a limited liability company" is exempt only if it is "for no consideration other than the issuance of membership interests," the members and their profit and loss allocations are identical to those of the enterprise, the transfer is part of a discontinuation of the enterprise, and "all real property owned by the individuals and used in the conduct of any real estate enterprise is being conveyed to a single limited liability company" (section 12-108(bb)(2)). The enterprise may be a sole proprietorship or a tenancy by the entirety, but its owners must be "principally involved in buying, selling, leasing, or managing real property" (section 12-108(bb)(1)). An investor who moves one rental property into its own LLC and keeps the others in individual names does not meet the all-property condition. The exemption that fits most individual owners is the conversion rule: a "sole proprietorship" includes "an individual who owns an interest in real property in the individual's name," and its deed to an LLC whose sole member is the converting owner, with the same profit and loss allocation, is exempt where the deed represents the dissolution of the predecessor for purposes of conversion (section 12-108(y)).

An individual's deed outside those exemptions falls back on the measure. A mortgage the LLC assumes is consideration on the face of section 12-103(a)(2)(i); the text says "assumed," and does not say whether property taken subject to a loan the LLC does not assume is counted. Whether the issuance of membership interests is "the amount paid or delivered in return for the sale of the property" under section 12-103(a)(2)(ii) is not answered by the statute. The structure of subsection (bb), which exempts a transfer "for no consideration other than the issuance of membership interests," suggests that the General Assembly regarded such an issuance as something that otherwise needed an exemption.

Maryland's traps when ownership changes sit on the transfers out of the entity. A distribution of property on liquidation, dissolution or termination is exempt only if it goes to an original member, a direct descendant or relative within two degrees of one, or a member who took by gift or bequest from an original member (section 12-108(q)). A transfer from a subsidiary up to its parent is exempt only if the parent previously owned the property, has owned the subsidiary for more than 18 months, or acquires a subsidiary that has existed and owned the property for two years (section 12-108(p)(2)(iii)). And because the downstream exemption requires the parent to be an original owner of the subsidiary, a business entity that buys an existing LLC and then deeds property into it does not qualify under section 12-108(p)(2)(i).

A worked example

An individual owns a small office building worth $3 million, subject to a $1.2 million mortgage. The owner forms a single-member LLC and deeds the building to it for no stated price; the lender consents and the LLC takes the property subject to the loan without assuming it. Eighteen months later, the owner sells 40 percent of the membership interests to an unrelated investor for $720,000. The building is placed in each of the five states in turn.

Washington. The deed is excluded as a transfer to a wholly owned entity, and the debt is irrelevant (WAC 458-61A-211(3)(b)). The 40 percent sale meets the trigger of the recapture sentence; whether tax becomes due on the original deed turns on how the unpaid-tax condition applies to a later transfer that carries no tax of its own, which the text leaves open.

New York. The deed is exempt in full and reported on Form TP-584 with Schedule F. The 40 percent sale does not reopen it; the sale is tested, with any related transfers within three years, under the controlling interest rules.

Delaware. The deed is excluded because 100 percent equity matches the 100 percent interest conveyed. The interest sale is tested under section 5401(8). A distribution of the building back out of the LLC within three years would not be excluded under section 5401(1)n., and after the investor's admission the proportion test would fail in any event.

Florida. The deed carries tax on at least the $1.2 million mortgage, assumed or not: $8,400 at 70 cents per $100. The LLC received the building without full consideration from its owner, so it is a conduit entity, and the $720,000 sale within three years is taxed at the same rate on the price paid for the interest, $5,040, prorated if the LLC holds other assets (Fla. Stat. section 201.02(1)(b)2., 3.).

Maryland. Section 12-108(y) is the exemption that fits: the owner is a sole proprietorship under that subsection and the LLC's sole member, so the deed is exempt from recordation and state transfer tax if it represents the dissolution of the predecessor for purposes of conversion (sections 12-108(y), 13-207(a)(18)). If it does not qualify, the tax turns on the measure: the LLC did not assume the mortgage, so section 12-103(a)(2)(i) does not by its terms count it, and whether the membership interest is consideration is unsettled. The 40 percent sale is tested under Maryland's separate controlling interest rules. On a later liquidation, a distribution to the owner, an original member, would be exempt under section 12-108(q), and a distribution to the investor would not.

The same deed is exempt in three states on different theories, taxable on the debt in one, and exempt in Maryland if it meets the conversion conditions, and the same later sale reopens the transaction in two states, on different terms, and does nothing to the original deed in the other three.

Practice notes

The analysis starts with the property list, not the entity chart: each parcel's state, county and city, because several of these taxes have local counterparts, and whether a deed will in fact be recorded. The second question is the debt on each parcel and whether the LLC will assume it or take subject to it, since that single fact changes the answer in Florida and Maryland and changes nothing in Washington, New York or Delaware. The third is the plan for the interests over the next three years: an investor admission, a gift program, a refinancing that brings in a lender's equity, or a sale of the property itself. Washington's recapture, Florida's conduit rule, Delaware's liquidation condition and Maryland's original-member and holding-period tests all turn on what happens after the deed, so the contribution and the later step are priced together. The exemption is documented on the return that accompanies the deed (Washington's excise tax affidavit, New York's TP-584 and Schedule F), and the file that supports it shows ownership of the property immediately before the deed and ownership of the LLC immediately after. G&G State Tax Group provides multistate real estate transfer tax analysis for contributions of property to entities and the restructurings that follow alongside its state and local tax practice.