I transferred a rental property to an LLC mid-year. How do I explain that on my 1040 Schedule S and Form 4562?

Forum|Forum|3 years ago
January 30, 2023
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TurboTax Self Employed Online

GeorgeM777

Are you the only member of your LLC? If yes, then generally, transferring property into a single-member LLC will have no tax consequences. Single member LLCs for tax purposes are not treated as separate from their owner/member. Therefore, from a tax perspective, the SMLLC will complete a Schedule E or a Schedule C depending on the owner's material involvement in the real estate activity.

If your LLC has multiple members, there could be tax consequences if the value of the property transferred to the LLC is greater than its cost. In that situation, you could be transferring a potential capital gain tax liability to the members of the LLC.

@jimmcfarlane

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jimmcfarlaneAuthor

Lawyer created husband+wife partnership LLC and transferred (sold for $5 each) two previously owned (owned by husband+wife) rental houses into LLC. It's correct that one can basically ignore (that is, disregard) stuff in single-member LLC.

I knew I was in trouble when I told TurboTax that I sold the rental houses and it calculated taxable depreciation recapture. So, I dug deeper. My limited understanding is that when you sell property to yourself (as we did and same people still retain control), there are no capital gains if you enter the correct data into the correct spaces on the correct forms. Like the old mechanic said, "I charge you 25 cents for tightening the bolt and $49.75 for knowing which bolt to tighten and how much to tighten."