Comments on your question and other related matters:
- The property contributed is entered as assets and depreciated.
- You will probably need to maintain two sets of depreciation; one based on FMV (economics of the transaction) and one based on the adjusted tax basis.
- The issue here is the FMV of the assets may be higher than the adjusted tax basis in the hands of the contributing partner. As a result, there is a regulation that deals with this issue. The regulation is in effect to prevent the shifting of any precontribution gain. Section 704(c).
- There is some complexity here, however, the bottom line is that the rules provide for three methods to eliminate this built in gain; traditional, traditional with curative and remedial.
- The jest to the regulations is that it shifts more tax depreciation to the noncontributing members, which allocates the built-in gain to the contributing member. You will need to continue to make this special allocation until the built-in gain is eliminated.
- The details of handling this is really beyond the scope of this forum. You may want to consult a tax professional depending on the $$ involved.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
