Checkup --> journal entry for contributing capital to company with accum. depreciation.

Hello. Can I have a confirmation that this journal entry makes sense. I am contributing capital to a company. It is real estate with accumulated depreciation on it.

(property is valued at $69,000 with 5,000 of accum. depreciation on the books. Ownership does not "completely change" as the company owners and the previous property owners are the same -- so no taxable event I think)

Is this right?

Fixed Asset (Real Estate) + 69,000 Dr. Accum. Deprec. + 5,000 Cr. Contributed Capital +64,000 Cr.

So the contributed capital is reduced by the amount of accum. depreciation on the books. This seems to make sense, because if i was instead selling the property, my cost basis would decrease by accum. depreciation... so the equity I "have" in it decreases as well when I contribute it to a company.

Thanks!

Reply to
jawolter
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When you say that ownership does not completely change, does this mean the company is a sole proprietorship? Is the deed being transferred into the company's name?

I know that your contribution would result in wiping out the accumulated depreciation on your end, but I am not so sure the company would transfer it in with your depreciation. Normally, it is FMV or BV, not cost to the original owner.

I guess I need more info.

Reply to
Beverly

Consider the couple married and the company (LLC) owned by the couple. So I believe there is no taxable event. The deed would transfer to the company's name. For this case, I don't think the depreciation dissapears...

Reply to
jawolter

and you would be wrong. although still a partnership for tax purposes it's a change in entity and the "contribution" must be at FMV and holding real estate in an LLC will have future tax consequences, consider getting real tax advice (not cyber opinions!)

Reply to
John

Keep in mind that business and personal do not mix and attempting to carry over depreciation is quite unusual.

I'd think the rundown would go something like this:

Let's assume the FMV is $72,000 (real estate tends to appreciate). Since you've been depreciating the property, I'll assume it was investment property.

Your personal books:

Investment in LLC $72,000 Accum Deprec. $ 5,000 Investment Property $69,000 Gain on Investment $8,000

Now let's say that transfering the deed, etc.. costs the LLC something... say $3,000.

The LLC's books:

Real Estate $75,000 Capital Contribution $72,000 Cash $ 3,000

Speak to your tax accountant. It appears to me that, if you do things properly, you are going to have a personal gain since you've depreciated the property and real estate tends to appreciate.

Reply to
Beverly

you all have been quite helpful. some family actually did this a few years ago and paid the tax accountant and all, I'm going to talk to them and get to the bottom of this issue. Thanks!

Reply to
jawolter

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