depreciation on rental property transferred to an LLC

Forum|Forum|6 years ago
February 5, 2020
3 replies
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I transferred a rental property from my and my wife's personal ownership to an LLC that is owned by me and my wife. How can I retain the original rental property purchase date for the LLC for depreciation purposes in TurboTax?

TurboTax Deluxe Online

DavidD66

According to an article by Albert B. Ellentuck, Esq that appeared in the AICPA's publication "The Tax Advisor":

Generally, Sec. 721 provides that a member’s transfer of property to an LLC taxed as a partnership does not result in income or loss to the member or the LLC. The LLC steps into the shoes of the contributing member with respect to the holding period and adjusted tax basis of the contributed property (Secs. 1223 and 723). This general nonrecognition rule applies both to contributions made upon the formation of the LLC and to subsequent contributions by new or existing members.

In other words, your cost basis, depreciation, holding period, etc is the same for the LLC as it was for you personally.

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jhobryan

The answer is fine, but TT Business wont let me put in the actual purchase date (only when the business started using the asset). TT needs the actual purchase date to know when to stop depreciating the property.

haddadtwinsAuthor

I had to calculate the remaining life for the rental property, then select a depreciation life close to that in TT Business to depreciate that asset over under the LLC. I'll keep looking into this to make sure there isn't a better way in TT.

jhobryan

thanks, the issue arises when the LLC is formed after the purchase date. But all TT Business will accept is the date the LLC is formed. So, again, how does TT know when to stop depreciating the asset? This is a real issue for me because next year I hit 27.5 years of depreciataion on a rental. But the LLC was only formed 2 years ago.

Carl11_2

Employee

The start date of the business ***MUST*** be no later than the first day the property was placed in-service. That is the absolute only way possible to transfer the prior year's depreciation already taken, and do it "CORRECTLY". By your method, the depreciation has started all over from the beginning for the next 27.5 years and that's just flat out wrong since the property was not sold or disposed of by the original owner.

Remember, your Partnership/Multi-member LLC is *still* a disregarded entity for tax purposes.

So if asked in the program, the *business* started on the day the property was place in service, or earlier. But the "partnership" started on the date you established for that.

That is how you property transfer everything from your personal 1040 SCH E to the 1065 return SCH E.

On the 1065, remember you have to *add* *together* the prior year's depr *AND* the current year's depr from your *personal* return to get the correct total of prior depreciation already taken, for the 1065 return.

jhobryan

Excellent Carl. So there are two dates that I enter, the date that the business started and the date that the LLC started. I will go back and see if I can figure out how to do that in TT Business.

BTW, my wife and I jointly own the LLC. Not sure about your "disregarded entity" comment? Google says that single owner LLCs are disregarded entities. I frankly dont understand the implications of being a "disregarded entity" but I suspect it doesnt apply in my case?