Family Farm LLC, land value on form 1065

[frankharry]

Our family members formed an LLC with the family farm.  The shares of the LLC are divided among members according to percentage ownership.  All current members received their shares through inheritance.  There are no loans against the land.  The liabilities and income are divided according to the same share division. 

We rent land out to tenants, and 100% of the incoming rent is passed on to the members after deducting expenses each year.

Land is our only asset.  Does the value of the land appear anywhere on form 1065 or on schedule K-1?  Is the land considered part of a member's Capital Account?  If so, how would the increase or decrease in value be tracked each year? 

We do not have to do the Balance Sheet on Schedule L and M, as we meet all four qualification statements, but if we did, would the value of the land appear anywhere in the balance sheet i.e. in section M-2?  If so, where do increases or decreases in value get recorded?

Thanks in advance for any help

[M-MTax · Accepted solution]

Increases or decreases in value of the land don't have to be reported.....there is a line on SCH L for land if you want to enter it. Capital accounts also don't need to be done but the member's contribution would be each member's share of the fmv when they inherited the land because that's their basis. Capital accounts don't increase or decrease with the land value....they increase with shares of net income and decrease with shares of net losses. If you don't need to fill out SCH L I'd forget about it and let each member know they have to keep track of their basis in the LLC.

[Anonymous]

a tax return is not a financial statement, so even if you put land on the balance sheet it would create problems if it were adjusted periodically to FMV - which is not required and has no effect on taxes but messes up the computation of what each partner's tax basis is in the partnership unless there is a supplemental schedule detailing it which I don't think can be done in TT Buisness. if you had looked at form 1065 you would see line 11 - Land.  the offset to land is to the capital a/c's.  since inherited, the FMV of land would go on line 11 with line 21 partner's capital reflecting the (same amount) offset. after that line 21 gets adjusted for all activity as does schedule L on each  k-1. each year's return line 21 should be the same as line 9 on schedule M-2.

Keep it simple. Forget about the balance sheet if you are not required to prepare it.