Connecticut LLC structure and cost: a controlling-interest transfer tax that taxes selling the LLC, not just the deed

Connecticut is a high-tax state, and for an LLC’s members that means income passing through at graduated rates up to 6.99%, with no preferential rate for capital gains the way the federal system provides. But the tax feature that most affects a real estate investor is not the income rate. It is the controlling-interest transfer tax, which closes the door on a move investors use elsewhere: selling the LLC that owns a property, rather than the deed, to sidestep the conveyance tax. Connecticut taxes that entity sale directly. Take the income tax briefly, then the transfer taxes that shape how a Connecticut deal is done.

The income tax, with no break for gains

Start with the rate, because Connecticut gives investment gains no special treatment.

Connecticut taxes income at graduated rates up to 6.99%, and it gives capital gains no preferential rate, so a gain is taxed as ordinary income.

A Connecticut LLC is a pass-through, so its income lands on the members’ returns across seven brackets running from 2% to 6.99%, with the top rate reaching income over $500,000 for a single filer and $1 million for a couple. Unlike the federal system, and unlike states such as South Carolina and Wisconsin that exclude a share of long-term gains, Connecticut applies no preferential rate to capital gains: a gain on the sale of a property is taxed at the same rates as rental income, up to 6.99%. So a Connecticut investor keeps less of a long-term gain than an investor in a state with an exclusion, which is one half of why realizing a Connecticut real estate gain is expensive. The other half is the transfer taxes.

The transfer tax you cannot structure around

Here is the feature a real estate lawyer watches for in Connecticut.

Connecticut taxes the transfer of a controlling interest in an entity that holds Connecticut real estate, so selling the LLC does not avoid the conveyance tax.

In many states, an investor who wants to sell a property can sell the membership interests in the LLC that owns it instead of the deed, and avoid the real estate conveyance tax, because no deed changes hands. Connecticut closes that door. Under Conn. Gen. Stat. Section 12-638b, the transfer of a controlling interest in an entity that possesses Connecticut real property is taxed at 1.11% of the value of that real property, whether or not a deed is recorded. So the entity-sale structure that saves a conveyance tax elsewhere triggers the controlling-interest transfer tax here, and a buyer and seller negotiating a Connecticut deal have to price it in. There is an exemption for transfers that are merely a change of identity or form of ownership, such as moving a property from an individual into his own wholly owned LLC, so ordinary restructuring is not caught, but a genuine sale of control is. The seam a CPA focused only on the deed can miss is that in Connecticut the tax follows control of the real estate, not just the paper of the deed, so structuring the sale as an entity transfer changes the label but not the tax.

Connecticut’s conveyance tax on a recorded deed is tiered, from 0.75% up to a 2.25% mansion rate, plus a municipal share, and the seller pays.

On an ordinary deed, Connecticut’s state conveyance tax under Section 12-494 runs 0.75% on the first $800,000 of a residential sale, 1.25% on the portion above $800,000, and 2.25% on the portion above $2.5 million, with commercial property at 1.25%, and municipalities add a further 0.25%, up to 0.5% in certain designated towns. The seller pays. Combined with the controlling-interest tax on entity sales, Connecticut taxes the transfer of real estate on both paths, which makes the exit cost a real line in any Connecticut investment.

The pass-through tax Connecticut invented, and the missing series

On entity-level tax and structure, Connecticut has one first and one gap.

Connecticut pioneered the pass-through entity tax and made it mandatory, then reversed course and made it optional starting in 2024.

Connecticut was the first state to enact a pass-through entity tax, a workaround for the federal cap on deducting state taxes, and for tax years 2018 through 2023 it was mandatory for partnerships and S corporations. Effective in 2024, under Conn. Gen. Stat. Section 12-699, the tax became optional: a qualifying entity elects into it annually, and the election is irrevocable for that year. The entity pays at 6.99% and the members take a credit, so for a profitable LLC taxed as a partnership the election can convert nondeductible state income tax into a deductible entity-level tax. A single-member LLC that is disregarded for federal tax is not a pass-through entity for this purpose and does not file it, so the election is a live decision mainly for multi-member LLCs. The older $250 business entity tax that Connecticut once charged every LLC was repealed in 2020 and is no longer owed. What Connecticut does not offer is a series LLC.

Connecticut has no series LLC, so an investor holding several properties uses a separate LLC for each.

The modern act Connecticut adopted has no series provisions, so the single-entity-with-internal-cells structure available in Oklahoma or Utah does not exist here, and each property an investor wants insulated goes in its own LLC, each with its own $120 formation and $80 annual report. The series LLC guide covers the form Connecticut lacks; the practical answer here is separate LLCs, priced against the state’s transfer taxes when any of them is eventually sold.

The bottom line

Connecticut taxes income at graduated rates up to 6.99% with no preferential rate for capital gains, so a gain is taxed as ordinary income.

The controlling-interest transfer tax under Section 12-638b taxes selling a controlling interest in an entity that holds Connecticut real estate at 1.11% of the property’s value, so selling the LLC does not avoid the conveyance tax.

The conveyance tax on a deed is tiered from 0.75% to a 2.25% mansion rate plus a municipal share, paid by the seller, so Connecticut taxes real estate transfers on both paths.

Connecticut pioneered the pass-through entity tax and made it optional in 2024, an annual, irrevocable election at 6.99% with a member credit; the old $250 business entity tax was repealed in 2020.

Connecticut has no series LLC, so multiple properties mean multiple LLCs, and the exit cost belongs in every Connecticut investment.

What this page does not cover

This page is about where the entity lives and what it costs to hold and move. How creditors reach a member’s interest, the strong homestead, and the missing entireties are on the protection page. The duties the operating agreement cannot waive, and the 2017 change to older LLCs, are on the governance page. The $120 formation fee and the $80 annual report are on the filing page.

Last verified August 2026.