Sold Family Cabin

[Baramore]

We had a family cabin and were set up as a Limited Liability Partnership.  The partnership only had the cabin, and we sold the cabin in 2021.  The partnership never had any income so we never filed partnership taxes in the past.  Now that the cabin has sold we need to file taxes so that we can show the distribution amounts to the members and issue K-1s.  We bought Turbo Tax for business but need help.  Do we need to add the cabin as a Business Property/asset disposals and take the depreciation that Turbo Tax figures or can we just fill out the ownership percentages and distributions?  If we do need to add the cabin as business property do we allocate the distribution as a profit percentage or an ownership percentage?  Where do we add the cost basis from when the cabin was gifted?  Thanks in advance

[ThomasM125]

Assuming the cabin was not rented out, it is not business property, so you shouldn't enter it as a business asset so depreciation is not an issue. Assuming you made a profit on the sale, you would enter it in the income section, under Investment Income and then Capital gains and losses.

Choose the Single Entry option and enter the date acquired, date sold, sales price, sales expense and cost of the property. 

You will need to set up each partner with their respective partnership percentage of ownership. TurboTax will generate a schedule K-1 listing each partner's share of the capital gain income that they will use to enter on their personal tax return.

[Mike9241]

did any of you get a 1099-S? if not follow the advice given.

[Baramore]

@Mike9241 

We received a Substitute form 1099-S, does that mean we cannot file as advised previously?

[Baramore]

Thank you @ThomasM125 , this makes sense.  Some of the members contributed money over the years for Maintenace and upgrades and I thought I entered that when I entered everyone's ownership percentages, but I cannot get back to that screen.  Should the money that was contributed be added to the cost basis as I do not see it reflected anywhere in the tax forms or K-1s?  Also, should the allocation be on a profit percentage or ownership percentage? The results appear to be the same no matter which one I pick.

Does it change the way I file if we received a substitute form 1099-S?

Thanks again

[Mike9241]

did each of you get a 1099-S for your share of the sale or was the 1099-S issued to the partnership using it's EIN?

if the 1099-S was issued to each of you then each taxpayer reports their respective share of the sales price and their tax basis in the property on their return - no partnership return

if issued in the name of the partnership using its EIN you need to file a first and final 1065.

in this case, you may want to consult a tax pro. there could be issues because no prior returns were filed and the reporting can be tricky.  basically when the property was bought each partner made a capital contribution. but how to show it on their k-1 . a beginning balance sheet may be required if certain conditions are met.  you would need to show the sale on form 8949 (flows to schedule D)  and with an acquisition date years ago, and no partnership filings, this too could raise an issue with the IRS

what if the form was issued under the EIN of only one of you

that person is a nominee. that person must file form 1099-S for each of the others showing the amount allocated to each. the form will show that person as the “PAYER” and the others as the “RECIPIENTs.” That person must file the forms with form 1096 due date 2/28/2022.

[Baramore]

@Mike9241 We were gifted the cabin, so the only money put in was for maintenance and improvements.  Since we did not purchase the cabin can we prepare the one final return with capital gains showing the cost basis at the value of the cabin when it was gifted plus contributions towards improving the cabin?  Since we did not file previous returns, we never took depreciation deductions so I assume we would not have to do anything with depreciation? 

We received one 1099-S for the partnership with the EIN listed.

Filing this way our K-1s show the capital gain in box 9a and distributions in box 19, does that sound right?

[ThomasM125]

The basis (Cost) of the cabin gifted to you would be the basis in the hands of the individual that gifted it to you, assuming you sold it at a gain. So, normally the basis in this case would be the cost of the property in the hands of the one who gifted it to you. If you inherited it, you could use the fair market value at date you took possession, but that doesn't apply to a gift. You could add the cost of improvements to that basis amount. There would be no depreciation since you did not rent the property.

You are correct in how the schedule K-1 form will appear.

[Mike9241]

i'm not sure if part L of the k-1 will populate.   if it does the problem will be that it will show the gain on the line for income, the amount distributed on the line for withdrawals and distributions.  since distributions will be in excess of gains you all could end up with negative capital  accounts unless the cost of the property transfers to beginning capital. but it needed it should be possible to enter it.   the real issue is getting the cost basis from the donor.