LLC Owned Rental Property

[user17706744622]

My LLC divided a rental property into two pieces this year.  The house is now on a small lot, and the rest is a vacant lot.  There are now two tax lots.  There was no change of ownership, and the deeds show both pieces are still owned by the LLC.  How do I record this in Turbo Tax Business?

[ReneV4 · Accepted solution]

To record this division into two pieces, with one being the "House Lot" and the other the "Vacant Lot", you will need to do the following:

1. Calculate the basis for each Lot by allocating the original cost basis between the two parcels based on their relative fair market value at the time of the division
2. Next, you will need to identify the current basis by finding your original cost basis allocated to the Land only in your books, since the House Basis has not changed
3. Once you have determined the cost basis of your Land, you need to determine what value belongs to the House Lot, versus the Vacant Lot (to determine ratio)
4. Multiply your original total Land cost by the ratio above
5. Next, you will need to reduce the basis of Land associated with the House so that it only reflects the value of the Land under the House
6. Next, you will need to create a new asset for the Vacant Lot, with depreciation being zero (0), since land cannot be depreciated

Note: If the Vacant Lot remains as part of the House Lot, it will remain as part of the rental activity assets. However, if the Vacant Lot is being held for investment or sale, it may need to be removed from the rental activity assets. 

Keep records of how you calculatated the split in case the IRS questions the basis allocation in the future.