People make LLC Capital Contributions in order to become LLC Members (owners of the LLC).
In addition to being exchanged for LLC ownership, Capital Contributions also “capitalize” (fund) your LLC. Meaning, they give your LLC the money it needs to operate, pay expenses, and ideally, become profitable.
Capital contributions can be made in the form of:
- personal property, or
While contributing money is the most common type of Capital Contribution, LLC owners may also contribute personal property.
Personal property is any item other than real estate. For example, vehicles, equipment, tools, and supplies.
Examples of Personal Property Contributions to an LLC
JB Construction LLC
James and Bilal form JB Construction LLC and they agree to each contribute $100,000.
James contributes his share via a money contribution (he writes a check to the LLC for $100,000).
Bilal contributes his share via a used bulldozer (worth $95,000) plus a money contribution (he writes a check to the LLC for $5,000).
SweetPie Snacks LLC
Maria and her brother Santos form SweetPie Snacks LLC. They agree to each contribute $10,000.
Maria writes a check to the LLC for $10,000.
And Santos contributes kitchen equipment he already owns, including his commercial oven, stand mixers, and specialized baking pans, altogether worth $10,000.
Documenting personal property contributions to your LLC
If personal property is being contributed to the LLC in exchange for ownership, this should be documented in the LLC Operating Agreement.
(We provide free Operating Agreement templates. Click the link above to download them.)
You should also give a record of this Contribution to your accountant. Call your accountant and ask what they need in order to document the Contribution.
Note: The person contributing the personal property shouldn’t be paid for the property. Instead, in exchange for the contribution, they should only be receiving LLC ownership (aka LLC Membership Interest).
And while we do provide a free Operating Agreement, you may need to customize it to document your personal property contribution. If you need assistance with customizing your Operating Agreement or documenting contributions, we recommend hiring a business attorney for help.
Tip: If any personal property is contributed in the future, this can be documented separately. It can be a simple document that you make on your computer, that would list the property and its fair market value.
How do I transfer my Personal Property Contributions to the LLC?
If the property being contributed has a title (like a car), the title would be transferred to the LLC.
If the property being contributed doesn’t have a title (like small equipment), then you would just document this in the Operating Agreement and move the machinery to the LLC’s place of business.
What’s the tax treatment of Personal Property Capital Contributions?
Don’t worry, as per Section 721 of the Internal Revenue Code, contributions of personal property aren’t taxable.
Meaning, neither you nor your LLC will have to pay taxes on the value of the personal property.
Exception: If your LLC is an investment company (which is rare – see Section 351 of the Internal Revenue Code), then the contribution might be taxable.
Are LLC Personal Property Capital Contributions tax deductible?
No, Capital Contributions of personal property can’t be deducted on your taxes.