If you convert a rental property from an individual to an LLC how do you enter the date you placed the building in service and the prior depreciation

[Critter]

The LLC ... is it only you ( & Spouse)?    Or a partnership?  Or is it incorporated?

[sheilasimms]

It is a partnership with our children

[sheilasimms]

It is a corporation with our childen

[bobbiefurr65]

It is now a partnership with my son and his wife and me

[brucefal]

shielaasimms (and others researching this question after looking at 10 pages of unanswered questions- this is a long write-up, but works answer):

This worked for me.  My situation is with rental real estate, with an asset contributed to a partnership with accumulated depreciation.  This should also work for any type of asset. 

1) Backup info.  Get a printout of your previous year's Depreciation and Amortization Report (Form 4562) showing the details of each asset purchase. 

2) Setup TT to accept data entry.  Then start in the "step-by-step" mode.  At Federal Taxes/Deductions/(Rental Real Estate) Expenses/Assets get to where you are entering in an asset as if you just bought it.  (For the title for this example, I entered it as "Fencing (2007)" so I can note that it has accumulated depreciation starting in 2007).  For the acquisition date, use anything, just as long as it is after the business starting date.  If your old Depreciation Report shows any Special Depreciation allowance, when you get to that question enter "yes".  Enter in everything as you would if you purchased in on the first day of the business. 

3) Correct the data entry. Then you need to fake out Turbo Tax and correct the entry.  Switch to the "Forms" mode.  Choose the "Asset Entry Wks ( Fencing 2007)".  At the top in Asset Entry change the "Date Placed in Service" to the real purchase date (6/12/2007).  Go down about 1/2 way on the first page of the form and on the lines "Prior Depreciation" enter in the TOTAL of the "Prior depreciation" column and the "Current depreciation" column from your previous year's Depreciation and Amortization Report (Form 4562) from step one.  You will see that the depreciation deduction on the next line corrects itself.

4) Confirm change is correct.  To confirm that you have it all right, go to the bottom of the Asset Entry Wks (Fencing 2007) and check the final 7 lines, that it shows the same Depreciation method, MACRS convention, year of depreciation (reflects that this is year 7 of the 15 year life), recovery period, etc. that is on the old Form 4562.  If something is wrong, change it on this form.

5) Final confirmation. Then for final confirmation, go to the "Depr Report" and it should look like the old report, just updated to this year.

Done. 

[brucefal]

Slight correction- if you do the above, contrary to TT's statements that the balance sheet numbers come from a transfer from previous periods, and statements that Schedule L (balance sheet) lines 9-11 do NOT come from the asset depreciation worksheets, they do if you are a first year filer.  

If you select to see the balance sheet for the first year of the business and if you have done the fix suggested above, for the assets where you put a startup date of earlier (like 6/12/2007 in the example) that the starting business date, IT WILL pick up that asset as a "start of year" asset.   Then your balance sheet may not balance, and it cascades to issues in the M-2 schedule.

One option is to ignore the balance sheet and related schedules completely for the rest of your business' existence, but if the business grows and the assets go above $1,000,000 you will need to go back and fix the issue then.  If the business sells assets and relys on the Capital Accounts show on the K-1's, those may be wrong.

Working on a better solution....

[brucefal]

Semi- final answer: This is an 80% fix for the issue of a partner contributing an asset to the partnership with accumulated depreciation (for an initial partnership return, but should also work on assets contributed to a partnership that has been in existence for a few years).  It was arrived at with some help from TT phone support.  For this example, assume the partnership started up on 1/15/2015.

1) Printout your last “Depreciation and Amortization Report” for the entity the accumulated depreciation occurred in for your use in step 3.
2) Go to Forms and open the “Information Worksheet” form.  In Part 1 it will show a “Date Business Started” of 1/15/2015.  Look down the “Date Placed in Service” column in the old Depr. Report and pick the earliest “Date of Service” of any asset you want to add, say it is 6/12/2002.  Click on the 1/15/2015 “Date Business Starte”d in the current return form and change it to “6/12/2002”.
3) Change to the “Step-by-Step” mode. Go to the tab Federal Taxes/Deductions/Rental Real Estate Expenses.  (If you have a different type business, the equivalent first section).  Click on Assets (Start or Update).  Enter in each of the assets from the old Depreciation Report, with the true Date in Service date, cost, etc. just as if it were a new asset you purchased.  At the end, it will give you a summary saying something like “You qualified for $3,545 is past depreciation, is this correct?”  Make any adjustments to get the old depreciation schedule match this entry, asset by asset.  (What you are doing is faking out TT to make it think that the business was started up 15 years ago and you just started using TT for the first time and entering in the past assets).
4) Once all assets are entered, go back to the “Information Worksheet”, and reset the “Date Business Started” date to 1/15/2015.
5) Then check the new depreciation schedule and all of the accumulated depreciation is in, along with the special depreciation.

Residual issue:  If you look at the balance sheet, it will be off, because it will show the assets as “Beginning of Tax Year” assets, even though the business did not exist.  It also makes an issue with the  year-end Partner’s Capital Account, at least for me (at this point in my data entry).   Two possible workarounds: 1) if your year-end assets are less than $1,000,000, put your head in the sand and choose the option in the Step-by-Step mode to not fill see the balance sheet, and related M forms.  With this choice, your financial sheets won’t match your books, but TT hides that from the IRS ; or 2) Look at the balance sheet, and hide it like the above for the initial tax year, but make corrections in year 2.  (I think this will work, I will know next year).  But maybe there is a fix for the double asset booking (comes in as a $ amount to the partner’s capital account, plus the residual asset value after depreciation taken).

[RandyA]

My tax attorney disagrees.  He says that the date an asset is placed in service can not be before the LLC existed.  You must use the date of transfer of the asset as the date it was entered into service with the LLC, carry over your deprecated cost basis, and restart your depreciation recovery period.

[brucefal]

RandyA-  The answer was not one that was looking for a TA opinion.  My answer is one as a workaround because TT does not allow you (back when I wrote the answer) to enter in a date of the transfer of the asset, then carryover a reduced depreciated cost and restart the depreciation recovery period.  As I remember (it was over a year ago and I only had to do it once), the failure is that when you get to the "restart depreciation", it does not allow you to say "start the depreciation as if you are on year 8 of a 15 year schedule".

The workaround does exactly what your tax guy says, it just gets to the correct answer by a way to fake out a small failure in the TT code.

Maybe TT corrected the problem this year and my answer is moot....

Did you do what he said and does it now work with TT?  Or was he opining on tax law and not computer program deficiencies?

[RandyA]

Of course his opinion was on tax law and not TT.  But if he is correct then there is no reason to fake out TT.  Just enter the date of the transfer as the date the item was entered into service.  Prior depreciation would be zero as the LLC is starting with the depreciated carryover basis of the item as its cost basis.  You would not restart the depreciation in year 8 or 15, it is year 1 for the item being in service with the LLC.

[Critter]

Randy is correct ... the depreciated basis is your starting point and the clock starts all over again. You cannot just pick up from where you were before because there was a change in ownership.