How to transfer rentals from personal ownership to partnered LLC

[harveyc]

My wife and I own rental properties in Ohio. We transferred ownership of those properties to a new LLC in June 2021. While we had previously used TurboTax Premier (filing jointly), I understand that we now have to use the Business edition for the LLC taxes and the Premier edition for our personal taxes (along with a half year of rental ownership). Since we wholly own the LLC, we did not receive any money from the LLC when we transferred ownership.

1. Can the Business edition import all the rental property information from the 2020 TuboTax files? I am particularly concerned about the assets and their depreciation.

2. On our personal tax, will this count as a $0 "sale" of the rental properties?

3. Is the process straight forward or should I plan on hiring a tax professional for the 2021 taxes?

Thanks!

[Anonymous_]

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@harveyc wrote:

3. Is the process straight forward or should I plan on hiring a tax professional for the 2021 taxes?

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Frankly, you should plan on using a tax professional, at least for the 2021 tax year.

You might also want to engage local legal counsel to ensure everything has been structured properly.

[Critter-3]

If you set up the multi member LLC as a partnership or corporation then ....

1. Can the Business edition import all the rental property information from the 2020 TuboTax files? I am particularly concerned about the assets and their depreciation.  No it cannot ... in the personal program you will remove all the assets by converting them to personal use on the date of conversion.  Then on the partnership return the asset is added but this can be the confusing part ...  https://www.thetaxadviser.com/issues/2014/apr/casestudy-apr2014-vm.html

2. On our personal tax, will this count as a $0 "sale" of the rental properties?  It is not reported as any kind of sale. 

3. Is the process straight forward or should I plan on hiring a tax professional for the 2021 taxes?  The personal return should be easy ... but setting up the 1065 or 1120-S may take more effort and using a local pro would not be a bad idea. 

[Rick19744 · Accepted solution]

You have three "yes" votes for having a tax professional provide guidance or actual preparation of your 2021 LLC form 1065 (this assumes the default partnership structure).

There are a number of issues that need to be addressed and documented:

• First and foremost, hopefully you have an operating agreement drafted.  This is a protection for both of you.
• Your "transfer" of property into the LLC will be treated as a capital contribution
• The LLC will take a "step into the shoes" basis on all property
• You should determine FMV of all property on the date of contribution.  This may come into play at some point.
  • While technically Section 704(c) does come into play, since you are spouses filing joint, the rules don't really impact you.
  • However, if at some point you bring in another member, then this could bring Section 704(c) into play.
• Is there any debt attached to the contributed property?  If so, this will be an issue that needs to be addressed AND could cause immediate tax if not handled properly.
• Finally, you don't mention if you also reside in Ohio as well.  Multi-state tax filing would come into play if you do not reside in Ohio.