Rental Property transfer to LLC

[VolvoGirl]

Sorry you can't transfer info from a personal return into Business.  You need to enter the assets into the Business program as new with the current depreciated value.  What kind of LLC did you set up?  It might still go on your personal return.   And you need to close out your personal Schedule C properly.

[Facsmann]

It is only myself and my wife so from reading the posts it may be a disregarded entity. 

[Anonymous_]

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@Facsmann wrote:

It is only myself and my wife so from reading the posts it may be a disregarded entity. 

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It is an LLC, so it would not be considered to be a disregarded entity for federal income tax purposes unless you met certain requirements, the most important being that you and your wife hold the rentals as community property in a community property state.

See https://www.irs.gov/pub/irs-drop/rp-02-69.pdf

Otherwise, you would have to file a return for the LLC (Form1065).

[Facsmann]

We are in common law state so the article you sent was very good.  

It appears i need to transfer data to Turbo Tax Business to generate the 1065 and K-1s to each of us to input into

Turbo Tax Home and Business.  

How do i accomplish that and properly close them out of TTHB. 

[Anonymous_]

You need to indicate in TTHB that you disposed of the properties (but not via sales).

In Business, the assets will be added using their current adjusted basis.

[Carl]

My wife and I created LLC late last year and transferred property to start LLC in Jan 1, 2022

I assume this is a multi-member LLC which is required to complete a 1065 partnership/Multi-Member LLC return. If that assumption is wrong, let us know, as it DOES matter.

There is no way to "automatically" transfer from the personal version of TurboTax, to TurboTax Business. You have to do it yourself - one keystroke at a time. But it's also important that you do it correctly. If not done correctly, then your depreciation history will be completely screwed up.  Key points:

 - The date the business started "MUST" be on or before the date the first property was placed "in service" as a rental. Doesn't matter if it was 20 years ago either.

 - It's important that you select the option pertaining to rental real estate, in the TurboTax Business program. Otherwise, the K-1 issued will be incorrect in addition to a risk of the depreciation history being skewed.

 - The K-1 that will be issued to each partner/owner is entered into your personal 1040 tax return, and the information will end up on page 2 of the SCH E in your personal tax return. It does not matter if you are filing a joint return. You will enter each of your K-1's individually.

Take note that the filing deadline for the 1065 multi-member LLC return is March 15th.  Not April 15th like it is for your personal 1040 return. The late penalty is $205 per month, for each member of the LLC. So one day late, and it will cost you $410 for the late filing penalty.

[Mike9241]

unless you live in a community property state the LLC is required to file a partnership return. it is due march 15th not in April filing late with2 partners can result in penalties of about $400 for one month late with a maxium of $4800 if 12 months late 

yes you use Turbotax business (window  PC only) to create k-1's which are then entered in Turbotax online (premier edition required) or use the desktop app (any version) 

you can not transfer depreciation history. it will need to be re-entered.

[Carl]

you can not transfer depreciation history. it will need to be re-entered.

Correct, not directly entered anyway. However, when you enter the original in service date for the property/asset, the program will figure what the total prior years depreciation "should" be, and will enter/display that figure for you. There, you can change it if it's off a bit. But be careful that you don't enter the wrong figure. Otherwise, the current year's depreciation amount will be way off.

[Facsmann]

Thank you for that March 15 date, i am learning a great deal from this discussion. It is a two member LLC my wife and i each have 50 percent ownership. I wish i would have read all these posts before creating the LLC. 

Is there any instruction manual or help screens on how to input the data in Turbo Tax Business

[Anonymous_]

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@Facsmann wrote:

Is there any instruction manual or help screens on how to input the data in Turbo Tax Business

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The help screens are rather minimal. 

Ensure that you indicate the LLC has rental real estate activity in the Business Info section and then start the Rental Real Estate section under the Federal Taxes tab.

[Carl]

Here's one tip I can provide, as while I don't see this mistake that much, I do see it often enough that it's worth mentioning.

You'll need to print out the form 4562's from  your 2021 return. There are a total of three of those for a single property.  One prints in portrait format and is the one actually filed with the return, if required. The other two print in landscape format. Of those two, one is titled "Amortization and Depreciation Report" and the other is "Alternative Minimum Tax Depreciation".  Most likely, depending on your situation the only one you will need is the first one.

To get the prior year depreciation amount for the 2022 tax return, you'll use the first 4562 (landscape format) from the 2021 return. For each asset add together the amounts in the "Prior years depr" column and "current year depr" column. That total will be the mount of prior year's depreciation that get's entered on the 2022 tax return.

I also advise that when entering the data for 2022, you enter the assets "exactly" as shown on the 2021 form 4562, dates and all. It's also important that once done, you print out the 2022 form 4562 and confirm beyond any doubt, that the data matches. The only columns that will not match will be the column for prior year's depreciation. If you placed any assets in service in 2021, then the "current year depr" column for that specific asset will probably not match either. I would expect it to be higher for 2022.

[Facsmann]

I have another question. We have a property that was rented and being depreciated with multiple schedules in Turbo Tax Home and Business.  We have not rented it all year will most likely not next year as it requires a great deal of rehab. 

How do we deal with this situation as it will be one that will be transferred to Turbo Tax Business. We have not received any income on it. 

[Carl]

I would highly recommend the property in question "NOT" be transferred into any LLC until the tax year it is ready to rent.

Since the property needs work as you say, I assume it to be uninhabitable; or at least not in a condition worth renting. Also assuming the property is still on SCH E as a part of your personal 1040 tax return, you should convert the property to personal use and leave it at that until the tax year all work and rehab is done and it's ready to rent.

Make sure you keep all receipts for the work done, as those items which qualify as property improvements will add to the cost basis you'll use at the time the property is available for rent.

On your personal return for the tax year you convert the property to personal use, you'll need to print out the 4562's for that property. Both print in landscape format. You will need the data from those 4562's along with your receipts for the rehab work, to establish your new cost basis in the multi-member LLC.

[Facsmann]

I don't see in TTHB how to dispose of property. I can go to the Rental and Royalty Summary and delete it

There is an area where it states " Do Any of these Situation Apply to this property.

Sold--I sold or disposed of this property in 2022. 

Explain Disposed of Property?

Check this box if the entire interest in this property was disposed of in a fully taxable transaction.

Do not check this box if the property was part of a like-kind exchange.

Do not check this box if the disposition was to a related party.

Do not check this box if the disposition was reported using the installment method, until the final year of payment.

If this box is checked, losses are not limited by the passive activity rules.

It wasn't a taxable transaction just a transfer. 

[AmeliesUncle]

Don't check that box.

Is this property being transferred to a Partnership return?  You can go into the "asset" for depreciation, and say it was disposed there.  You can say it was converted to personal use.