Depreciable property contributed to LLC

That's what I read in a book, so it sounds correct.

Not sure, but maybe the individual should file a form 4797 to indicate disposal of the property (as it was disposed by them and transferred to the LLC). If the 10k was straight line depreciation it might not need to be recaptured -- regarding the rules for the 1245/1250 property, but I'm not sure. The cost basis would be 100k, depreciation 10k, selling price 90k, so no tax should be due. Thereafter the LLC depreciates the property for 27.5 years using 125k as the cost basis.

Sorry, my answers are not definitive either. This is all new to me. I don't know the answer to #5.

The tax basis of the property to the LLC would be $90,000.

Yes.

$100,000 acquisition cost less $10,000 accumulated depreciation. The $90,000 would be recovered (deducted) over the remainder of the 27.5 year useful life.

Same schedule using remaining life.

No, it would be the sale of a 1231 asset which is not quite the same thing. The sale is reported on Form 4797.

Right about the tax basis and depreciation. Not so much about the sale. Property used in a trade or business is not a capital asset (despite what economists say).

Hmmmm... that's a troubling remark.

Good luck.

Regards, Bill

I don't think so because I think Section 721(a) applies: there is no gain, the basis within the partnership (which happens to be an LLC) is 100,000, and the partners now each have a basis in the partnership of

That is, they have the same basis as before, only now it's in the partnership instead of in the property itself.

Interested in other opinions though.

Steve

Because LLC taxation is a pretty complex subject, I'd strongly advise you have a CPA or EA prepare the tax returns for you. That person can suggest the best basis to use; normally tax basis is used when you aren't preparing GAAP-basis financial statements. Another thing to watch out for with an LLC (but not for a general partnership) is at- risk limitations if the property is encumbered by debt. Even if the LLC has a loss, you might not be able to deduct the full loss until there is income (such as from the sale) against which to take the loss.

This one is very straight-forward. There's an internal renevue code section that makes the contribution of property to a partnership [which includes an LLC that's being taxed as a partnership] basically a "nothing really happened, and everything carries over" transaction. It's not a taxable event, and there's [usually] no income to be recognized. The adjusted tax basis and depreciation of the property are just the same as they were in the hands of the two individuals. Even the holding period carries over to the LLC.

I would be more concerned with how the *legal* aspects of the transfer of the ownership of the property are being handled. Is the title to the property being changed from the two individuals to the LLC, and is this change being recorded in the local land records? Is there a mortgage on the property and if so has the mortgagee been notified of the change of ownership? Existing leases should be changed to the new owner's name and the tenant(s) should be notified. Will the LLC now become the insured owner on all the insurance policies? Are the utilities being changed to the LLC's name?

Is there a security deposit and how has it been accounted for?

What have I forgotten?

"...two equal owners - related but not married." Is this property in West Virginia?

Hi Lotax , do you know the ruling where you read the above statment you mentioned to read more about that ?

You should start at IRC Section 721