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How to handle depreciation for rental properties transferred from one LLC to another LLC?

I have several rental houses. They were in a multi-member LLC for several years but in 2020 I transferred the properties from the LLC to me, and then from me into a different multi-member LLC of which I own 99%. How do I handle the depreciation? The properties had been depreciated for many years in the original LLC. There was no sale or purchase - just a quitclaim deed from the first LLC to me and then another quitclaim deed from me into the second LLC. In the new LLC, should I just continue the depreciation schedule from the first LLC (as though no transfer had occurred)? Or does the depreciation schedule start over because I transferred the properties into a new LLC? 
The old LLC remains, and will now be a property management company that does not own any properties but provides property management services for the new LLC. 
So, with regards to TurboTax, what this question means is: should I start the TurboTax file for the new LLC by making a copy of the old LLC so I can just continue the depreciation schedules as before, or for the new LLC should I start a new TurboTax file from scratch with completely new depreciation schedules?
And one other question is how to stop the depreciation schedules on the tax return for the old LLC? In TurboTax, how do I tell TurboTax that the LLC doesn't own those properties anymore (but without calling it a sale)?

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3 Replies

How to handle depreciation for rental properties transferred from one LLC to another LLC?

the first LLC was a multimember LLC - was the only other member your  spouse? if not, how why was their interest transferred to you and was any consideration given to the other party for giving up their ownership interest? 

Carl
Level 15

How to handle depreciation for rental properties transferred from one LLC to another LLC?

This only applies ***IF*** a transfer of ownership was actually registered at the courthouse, thus changing the name of the owner on the deed. It also does not apply if ownership of the first LLC and ownership of the second LLC are the same partners.

You must reduce the cost basis of the property by the amount of depreciation already taken in the first LLC, and use that reduced cost basis in the new LLC. Depreciation will start over from year one, using the reduced cost basis.

Take note that only the cost basis of the structure will change. Since land is never depreciated, the cost of the land does not change.

How to handle depreciation for rental properties transferred from one LLC to another LLC?

Carl:  Thank you for your answer. 

The first LLC was owned 100% by me. The new LLC is owned 99% by me and 1% by my adult son. The quitclaim deeds were properly recorded at the County Recorder's office. First there was a quitclaim deed to transfer ownership of the properties from the first LLC (a single-member LLC in the state where I live) to me, and then a couple of weeks later I did another quitclaim deed to transfer ownership of the properties from me into the new LLC (a multi-member LLC in a different state where neither owner resides). 
So, based on the answer from Carl, it looks like I should not make a copy of the TurboTax file from the first LLC and simply continue the depreciation as before; but instead I need to start a new TurboTax file for the new LLC, and the new LLC will have a new depreciation schedule that uses the last depreciated value [taken from the latest tax return of the first LLC] as a starting point. Right? 

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