How do I report a rental (owned by several partners) converted to an LLc this year?

[millerteresa2012]

I have a K-1 for the last half of the year.  It was converted June of 2017, so I need to report the 1st 6 months on Schedule E, is that correct? How do I show the asset conversion from a partnership to an LLC?

[Carl]

This is a two-step process, and Cathi's answer is not on inclusive of the more finite details you need to know.
Step 1 - Dispose of the property on your personal tax return.

Step 2 - Show the acquisition of the property by the partnership.

For now, my response will "ONLY" deal with the correct and proper disposition of the property off of your personal tax return, in a way that will allow for it's non-monetary transfer into the 1065 partnership return. I am assume that you did ***NOT*** own 100% of the property when reporting it on your personal return, meaning that all partners will need to do this, assuming all partners are using TurboTax.

Start working through your rental property *AS IF* nothing is changing. About 2-3 screens in select the checkbox for "I sold or otherwise disposed of this property in 2017" and keep working things through "as if" nothing has changed.

When you get to it, you will report all rental income received up to the date of disposition/transfer.

You will report all rental expenses incurred up to the date of disposition/granfer

For the assets, that section is now titled Sale of Assets/Disposition. Elect to update/edit that section. You must do the below for each and every asset listed individually.

Work through the asset and select YES to indicate that you did stop using the asset in 2017.

When you get to the "Special Handling Required?" screen, you must click YES. If you click no, then  you are telling the program that you sold the property for money. So you MUST click YES on that screen. Then continue working the asset though. You will not be asked for any sales information. You MUST do this for each individual asset listed, one at a time. Make sure your disposition date is the same for all assets. This date must also match excactly, the disposition date of the owner property owners also.

At this point, we're ready to start entering the property in the TurboTax Business program. I assume you will be filing a 1065 Partnership return since this is a multi-member LLC. Let me know when you're ready to continue.

Do note that you can NOT file *any* tax return at this point, because your personal tax return is not done until you've entered the information from the K-1 that the partnership will issue to each owner.

[millerteresa2012]

Correct, we did not own 100%, the ownership percentage did not change when the LLC was formed. I have entered all the information on Schedule E, but I did have to force the Depreciation amounts (under Forms). I have already entered all the Schedule K-1 information. I had to force the depreciation because I had already entered the partail year depr from the Schedule K-1. Is that correct?

[millerteresa2012]

I have already received the 2017 Partnership Form 1065 Schedule K-1 and entered it, and I thought I had forced the depreciation on Schedule E, but TurboTax is not doing it.  How do I fix it?

[Carl]

You don't "force" anything on your personal return. All depreciation is dealt with and reported on the 1065 partnership return. You just enter the K-1 exactly as printed, pay attention to any follow-up screens after the data entry screen, and press on with life. Depreciation, rental expenses and all that stuff is dealt with on the 1065 partnership return. All you do with the K-1 basically, is record your rental income and/or losses, and that's pretty much it.
Hopefully whoever did the partnership return did it right and accounted for all prior depreciation already taken when it was reported on the personal 1040 SCH E's among the partners. If not, the never ending nightmare for all partners hasn't even started yet.

[millerteresa2012]

The CPA that did the K-1,  only took depr from June 22 - Dec 31.  TurboTax figured it for the whole year, so is there any other way to report the depreciation from Jan 1 - June 22

[Carl]

Yes. Follow my instructions in my answer above, and make your disposition date June 21st. There's a pretty good possibility that the K-1 is wrong too, unless the CPA knows what they're doing and took into account the depreciation taken by all partners up to June 21st.
Go ahead and do the above, and then let me know if you have a copy of the 4562 from the 1065 partnership return, so we can check figures.

[millerteresa2012]

Ok,  I have it now.  I think I can handle it from here.  Thanks much!

[CathiM]

When you go through the interview in TurboTax to dispose of your rental property, you will have a chance to enter the correct prior deduction (through 12/31/16) and it will show you how much it calculated the 2017 depreciation (through 06/22/17). It sounds you are saying you are not getting the correct depreciation for the period 01/01/17 - 06/22/17.  I cannot see your return, so I am not able to see what could be wrong.  One possibility could be if you changed the purchase price when you entered the disposal.  You should enter selling expenses and closing costs in the box "Asset Sales Expense" under "Asset Sales Price". If you add selling expenses and closing costs to the cost box, it will mess up the depreciation.

You will probably have recaptured depreciation as part of the gain that TurboTax gives you at the end of the interview.  This is because you took a deduction for depreciation when the property actually appreciated.

To report the sale of rental property:

When in your tax return, under Wages & Income tab at the top, scroll down to Rental Properties and click on Update. There are 2 places you have to report the sale, in the Property Profile and the Asset section

1. Continue through the next 2 screens and on the 3rd screen click on Edit next to your property
2. Click on Update next to Property Profile, continue through the next 2 screens 
3. On the screen Do Any of These Situations Apply to This Property? check the box by I sold or disposed of this property in 2017
4. If it applies, check the box by I have passive activity real estate losses carried over from a prior year. This will give you that deduction in 2017.
5. On the next screen Passive Losses From Prior Years, TurboTax should have the correct NEGATIVE amounts in the boxes, if not enter those Negative numbers manually from last years tax return
6. TurboTax will lead through a series of questions to gather the information. When you finish the Property Profile section, skip down to the Asset section and click on Update
7. Continue through the screens (you can go directly to the Asset summary and click on Edit next to the property), continue answering questions until you reach the screen Tell Us More About This Rental Asset, check the box The item was sold, retired, stolen.... and enter the date sold
8. Continue through the screens entering Asset Sales Price and Asset Sales Expenses
9. Continue on and on the screen, Special Handling Required? choose YES if you had a passive loss carryover
10. Just finish any remaining screen, click Done to get out of Rental Section

[millerteresa2012]

There was no sale of the asset, but since it is now in the LLC, I need to dispose of it.  The k-1 I received has a portion of the depreication, so I need to take the annual depr - the depr reported on K-1 and put that on schedule E.

[CathiM]

When you enter the disposal on June 22, Turbo Tax will calculate the depreciation for the period Jan 1 - June 22, instead of the whole year. TurboTax has no way of knowing that you disposed of it, unless you go through the disposal steps.

[Carl]

Basically, it's important you select YES on the "Special Handling Required?" screen and finish working it through. On the final screen for each asset it will show you the depreciation to be taken for 2017, up to the disposal date. You can also click the details link on that page to see the breakdown.

[pranavshah_76]

I am in the same situations and wanted to know the 2nd step. We had bought the property in 2015 have take depreciation in last 4 yrs now transferred the property to LLC but how to show in TT that depreciation has already been taken for 4 years .

Thank you

Pranav

[AmeliesUncle]

The last I checked, you can do it in TurboTax.  It will keep giving you errors.

[Critter-3]

@pranavshah_76 

Who are "we"? 

And how have the "we" been reporting the rental in the past ?   On personal returns on a Sch E ?