I transferred a rental property to an LLC mid-year. How do I explain that on my 1040 Schedule S and Form 4562?

[GeorgeM777]

Are you the only member of your LLC?  If yes, then generally, transferring property into a single-member LLC will have no tax consequences.  Single member LLCs for tax purposes are not treated as separate from their owner/member.  Therefore, from a tax perspective, the SMLLC will complete a Schedule E or a Schedule C depending on the owner's material involvement in the real estate activity.  

If your LLC has multiple members, there could be tax consequences if the value of the property transferred to the LLC is greater than its cost.  In that situation, you could be transferring a potential capital gain tax liability to the members of the LLC.  

@jimmcfarlane

[jimmcfarlane]

Lawyer created husband+wife partnership LLC and transferred (sold for $5 each) two previously owned (owned by husband+wife) rental houses into LLC. It's correct that one can basically ignore (that is, disregard) stuff in single-member LLC.

I knew I was in trouble when I told TurboTax that I sold the rental houses and it calculated taxable depreciation recapture. So, I dug deeper. My limited understanding is that when you sell property to yourself (as we did and same people still retain control), there are no capital gains if you enter the correct data into the correct spaces on the correct forms. Like the  old mechanic said, "I charge you 25 cents for tightening the bolt and $49.75 for knowing which bolt to tighten and how much to tighten."

[PatriciaV]

Please clarify a few factors that may influence how you should file. 

Do you live in a community property state? 

Was the LLC formed as an S-Corp?

[chickmt]

I am about to do the same as you. Rental house owned by husband and wife. LLC can be either single member or both, depend on which way does not trigger capital gain tax. Can you give me advise that I should do single member or both of us in LLC? Look like you are able to fill in form into a correct space of the form. Can you show me detail of how you do? Thank you very much. 

[Mike9241]

if it was transferred to a single member LLC, you do nothing different for your 1040. you continue reporting on schedule E.  

not a lawyer but if both H&W are on the title it would seem that a single member LLC is not possible because that can have only one owner. if you are not in a community property (CP) state a multimember LLC - even H &W must file a partnership return. if you live in a CP state, continue reporting on schedule E. 

however, if the property is transferred to an S-Corp, generally unadvisable, mortgages don't count towards basis which can subject losses to the at-risk limitation. see a tax professional.