Can I move real estate into an LLC, partnership, or corporation without paying Connecticut real estate conveyance tax, if my beneficial ownership doesn't change -- even though I might transfer interests later?

Plain-English summary

A married couple wanted to reorganize how they held a shopping center (worth well over the $2,000 conveyance-tax threshold). The plan had several steps: the husband, who owned it outright, would deed a half interest to his wife; the couple would form a corporation (each owning 50% of the stock) and a limited partnership; each spouse would then deed their half of the shopping center into the limited partnership in exchange for a 49½% limited-partner interest, while the corporation put in cash for a 1% general-partner interest. After all that, the couple might later transfer some of their partnership interests. They asked whether the real-estate transfers triggered Connecticut's real estate conveyance tax.

DRS said the transfers were exempt:

• The husband-to-wife deed is exempt as a deed between spouses under Conn. Gen. Stat. § 12-498(a)(14).
• Deeding the shopping center into the limited partnership is exempt under Conn. Gen. Stat. § 12-498(a)(17) as a transfer to effectuate a "mere change of identity or form of ownership … where there is no change in beneficial ownership." Before and after, each spouse owned (directly or through the corporation's small general-partner stake) the same 50% beneficial interest in the property — only the legal wrapper changed. This exemption was added effective October 1, 1999 (1999 Conn. Pub. Acts 231, § 1); before it existed, DRS had treated deeds between an individual and a wholly-owned corporation, or between partners and their partnership, as taxable.

The key point for planners: DRS held that possible later transfers don't retroactively tax the reorganization. The conveyance tax is a transactional tax — you test each deed at the moment it happens. Because there was no change in beneficial ownership at the time of the change-of-form transfer, that transfer is exempt, and the fact that the couple might later transfer partnership interests (which could change beneficial ownership) does not undo the exemption on the initial transfer. Any later transfer would be judged on its own terms when it occurs.

What this means for you

Real estate owners and business owners restructuring how they hold property

You can generally move Connecticut real estate from individual names into an entity — an LLC, partnership, or corporation — without paying conveyance tax, as long as beneficial ownership stays the same through the transfer (a "mere change of form"). Crucially, you don't lose that exemption just because you anticipate transferring interests in the entity down the road. Structure the reorganization so beneficial ownership is unchanged at the moment of the deed, and document that carefully.

Estate planners and real estate attorneys

This Ruling confirms the transactional nature of the § 12-498(a)(17) exemption: test beneficial ownership at the time of each conveyance. A multi-step reorganization (individual → partnership with a corporate general partner) can qualify if each participant's proportionate beneficial interest is preserved. Later, separate transfers of entity interests are analyzed independently and don't taint the earlier exempt change of form. Remember the spousal-deed exemption in § 12-498(a)(14) for interspousal steps.

Accountants and tax professionals

The tax attaches under § 12-494(a) to deeds with consideration of $2,000 or more; the exemptions live in § 12-498(a). The change-of-form exemption (a)(17) is comparatively new (Oct. 1, 1999) — before it, entity-formation deeds were taxable, a point reinforced by prior DRS guidance (LSN-98; SN 99(3)) and by the courts (Bjurback v. Commissioner; Vigliotti v. Commissioner) and the Attorney General (1989 Op. Atty. Gen. 89-020). Confirm no change in beneficial ownership at the transfer date rather than over the life of the structure.

Common questions

Q: Do I owe Connecticut conveyance tax when I move real estate into my own LLC or partnership?
A: Generally no, if it's a mere change of the form of ownership with no change in beneficial ownership — that's exempt under Conn. Gen. Stat. § 12-498(a)(17).

Q: What if I plan to transfer interests in the entity later?
A: The later possibility doesn't tax the initial change-of-form transfer. The conveyance tax is transactional, so the initial exempt transfer stays exempt; any later transfer is judged on its own when it happens.

Q: Are transfers between spouses taxed?
A: No. Deeds between spouses are separately exempt under Conn. Gen. Stat. § 12-498(a)(14).

Q: When does the real estate conveyance tax apply at all?
A: It applies under § 12-494(a) to a deed, instrument or writing conveying realty when the consideration is $2,000 or more — unless an exemption in § 12-498(a) applies.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-494(a) (real estate conveyance tax on deeds with consideration of $2,000 or more)
• Conn. Gen. Stat. § 12-498(a)(14) (exemption for deeds between spouses)
• Conn. Gen. Stat. § 12-498(a)(17) (exemption for a mere change of identity or form of ownership with no change in beneficial ownership), added by 1999 Conn. Pub. Acts 231, § 1

Prior guidance and authorities:

• LSN-98 (Technical Advisory Concerning Real Estate Conveyance Taxes); SN 99(3) (Effect of Federal Tax Law Changes on the Taxation of Limited Liability Companies and S Corporations and Their Shareholders)
• 1989 Conn. Op. Atty. Gen. 89-020; Bjurback v. Commissioner, 44 Conn. Sup. 354 (1996); Vigliotti v. Commissioner, 44 Conn. Sup. 444 (1996)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 2000-3

Original ruling text

Ruling 2000-3, Real Estate Conveyance Tax

FACTS:

Husband is the sole owner of a shopping center ("Shopping Center"). The fair market value of the Shopping Center is more than $2,000. On or after October 1, 1999, Husband will transfer, by deed, instrument or writing, to Wife an undivided one-half interest in the Shopping Center. Husband and Wife will form a corporation ("Corporation") and will contribute an amount in cash or marketable securities equal to 1% of the fair market value of the Shopping Center in exchange for 100% of the capital stock of the Corporation. Each spouse will receive 50% of the capital stock of the Corporation. Each spouse will transfer, by deed, instrument or writing, his or her undivided one-half interest in the Shopping Center to a newly formed limited partnership ("Limited Partnership") in exchange for a 99% interest in the Limited Partnership. Each spouse will receive a 49½% interest, as a limited partner, in the Limited Partnership. At the same time, the Corporation will contribute its assets to the Limited Partnership in exchange for a 1% partnership interest, as a general partner, in the Limited Partnership. Subsequently, there may be transfers of an interest in the Limited Partnership by Husband or Wife or both.

ISSUE:

Whether a transfer, by deed, instrument or writing, is exempt from real estate conveyance tax pursuant to Conn. Gen. Stat. § 12-498(a)(17), which provides that transfers or conveyances to effectuate a mere change of identity or form of ownership or organization are exempt from the real estate conveyance tax, where there is no change in beneficial ownership, if subsequent transfers or conveyances may be made that will result in a change in beneficial ownership.

DISCUSSION:

Conn. Gen. Stat. §12-494(a) imposes a tax "on each deed, instrument or writing, whereby any lands, tenements or other realty is granted, assigned, transferred or otherwise conveyed to, or vested in, the purchaser, or any other person by his direction, when the consideration for the interest or property conveyed equals or exceeds two thousand dollars…"

Certain deeds, instruments or writings are exempt from the real estate conveyance tax. Specifically, Conn. Gen. Stat. §12-498(a)(14) provides an exemption for deeds between spouses. Accordingly, the transfer, by deed, instrument or writing, of an undivided one-half interest in the Shopping Center by Husband to Wife is exempt from the real estate conveyance tax.

Effective October 1, 1999, Conn. Gen. Stat. §12-498(a) was amended to add a new real estate conveyance tax exemption for

(17) transfers or conveyances to effectuate a mere change of identity or form of ownership or organization, where there is no change in beneficial ownership.

1999 Conn. Pub. Acts 231, § 1. Prior to the enactment of this exemption, the Department treated a deed between an individual and his or her wholly-owned corporation, and a deed between partners and their partnership as subject to real estate conveyance tax. See , e.g. , LSN-98 , Technical Advisory Concerning Real Estate Conveyance Taxes , and SN 99(3) , Effect of Federal Tax Law Changes on the Taxation of Limited Liability Companies and S Corporations and Their Shareholders . The Attorney General and the Superior Court have concurred. See 1989 Conn. Op. Atty. Gen. 89-020; and Bjurback v. Commissioner , 44 Conn. Sup. 354, 690 A.2d 902 (1996) and Vigliotti v. Commissioner , 44 Conn. Sup. 444, 692 A.2d 407 (1996).

The transfer, by deed, instrument or writing, of the Shopping Center by Husband and Wife to the Limited Partnership effectuates a mere change of form of ownership. The Husband and Wife each owned an undivided one-half interest in the Shopping Center before the transfer, and, because each spouse owns a 49½% interest, as a limited partner, in the Limited Partnership and 50% of the capital stock of the Corporation (which itself owns a 1% interest, as a general partner, in the Limited Partnership), each spouse owns, directly or indirectly, a 50% interest in the entity that owns the Shopping Center after the transfer. Accordingly, the transfer, by deed, instrument or writing, of the Shopping Center by Husband and Wife to the Limited Partnership is exempt from real estate conveyance tax under Conn. Gen. Stat. §12-498(a)(17).

Although Husband and Wife may make subsequent transfers or conveyances of their beneficial interests in the Limited Partnership, the real estate conveyance tax is a transactional tax. Any transfers or conveyances that are made after the initial transfer and that may change the beneficial interests in the Limited Partnership of Husband or Wife, or both, do not affect the exempt character of the initial transfer.

RULING:

A transfer, by deed, instrument or writing, is exempt from real estate conveyance tax pursuant to Conn. Gen. Stat. § 12-498(a)(17) where there is no change in beneficial ownership, even if subsequent transfers or conveyances may be made that will result in a change in beneficial ownership.

LEGAL DIVISION

Issued June 13, 2000