Conversion of Rental Property held by H/W LLC Partnership

[jfenn]

Property was one of many we contributed to LLC in 2008-2015. We have since sold off all of the rental properties in the LLC except for the last one which we have converted to personal use in 2023. How do you reflect this conversion in turbo tax business software and what are the tax consequences on the conversion of the real estate and associated depreciable furniture? 

[Carl]

property held in a multi-member LLC can not be converted to personal use. You have to show the property as a distribution and/or return of capital to the owner(s) of the LLC or to a third party.

[jfenn]

thanks for response. I should mention that LLF is owned by myself and wife as equal partners. We are in a non-community state, so not a joint venture. The property was contributed to the LLC and is thus in our individual names. I agree the property must be distributed as a liquidating distribution. I guess my basic question is this. Since it is a liquidating distribution and the property is in our names, I am surmising that the liquidating disitribution is not a taxable event and that upon dissolution of the LLC, my wife and I would carry a carryover basis in distributed property including holding period tacking as well as prior depreciation claimed that would ultimately be recognized on the subsequent sale of the property. Trying to confirm if 1) I have the tax treatment right and 2) how I reflect the liquidating distribution in turbo tax business to properly reflect the distribution to the partners on their respective K-1's. We are 50:50 partners.

[PatriciaV]

Yes, you report a property distribution to the LLC members equal to the partnership's adjusted basis in that property. The distributed basis becomes the member's basis, with the same holding period. Under Section 731(a), distributions of property are not taxable to the member if the value of the property does not exceed the member's tax basis in the LLC. This is the member's outside basis, not the member's capital per the partnership.

You will need to calculate the partnership's adjusted basis (net of depreciation) in the property immediately before the distribution is made. See IRS Pub 527 Adjusted Basis for more information.

In TurboTax Business for Form 1065, the allocated distribution amount is entered under Business Info >> Partner/Member Information on the "Member Capital" page for each member. 

Or you can enter this manually on the Sch K-1 Wks using Forms Mode. Distributions appear in the left column under Capital. (Note this form has an embedded scrollbar to move between partners.)