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TT Business Member Capital - "contributed property" question

I transferred the ownership of a rental SFR from personal to a newly formed pass-through partnership/LLC. Filling out 1065. TT Business asks about member's cash contribution to the LLC [easy answer] and property contribution to the LLC.

 

I believe the rental SFR is a property contribution to the LLC. True? False?

 

Assuming True, I want to understand the correct value to enter in TT, using this synthetic example:

* SFR purchased for FMV = $220,000, current FMV = $275,000

* SFR cost basis for taxes = $127,505 off which $86,133 is depreciable [it was part of a 1031 exchange]

* SFR accumulated depreciation until title transfer to the partnership = $5,090

 

What is the correct SFR's value contributed by the member to the partnership?

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Accepted Solutions

TT Business Member Capital - "contributed property" question


@Rick19744 wrote:
  • As a result of bullet number 1, I don't know which figure TT is wanting when asking the question; it could be FMV (which drives the economics of the deal), or it may be your adjusted basis of the property contributed.  Possibly @tagteam can provide guidance as to where this question leads to within TT.

This being an asset that was contributed to the partnership, and depreciable, there will be an entry for the property the partner contributed to the partnership and also, of course, another entry in the appropriate asset entry section of the program, the latter being in the Rental Real Estate section of the program.

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4 Replies

TT Business Member Capital - "contributed property" question

See https://www.thetaxadviser.com/issues/2014/apr/casestudy-apr2014-vm.html

 

Yes, this is a contribution to capital.

 

I will also page @Rick19744

TT Business Member Capital - "contributed property" question

This is your second property contribution question.  Partnership tax gets complicated quickly, and as a result, you should probably get some professional input so you get started down the right path.

Since I am not in a Windows environment, I can't see where TT is going with the question.

There are many issues that come into play when contributing property to a partnership:

  • There are essentially two sets of books, and maybe three, that need to be maintained when dealing with a partnership
    • There is the economic set of books (also known as Section 704(b) books)
    • There is the tax set of books
    • Then your normal accounting set of books. 
  • As a result of bullet number 1, I don't know which figure TT is wanting when asking the question; it could be FMV (which drives the economics of the deal), or it may be your adjusted basis of the property contributed.  Possibly @tagteam can provide guidance as to where this question leads to within TT.
  • One item and additional complexity that was not noted in the previous response to your post, is that while contributed property is a step into the shoes transaction (adjusted basis, same depreciation method, etc.), the partnership needs to also take into account the difference between FMV and the adjusted basis of property contributed.  This will most likely result in a special allocation as a result of Section 704(c).  This difference is the built-in gain to the contributing partner and the expected depreciation for the noncontributing partner.  This is an annual adjustment (allocation) and needs to be tracked along with a special allocation.  This complexity is another reason that it is best to get some professional support in getting this set up correctly when property is contributed.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.

TT Business Member Capital - "contributed property" question


@Rick19744 wrote:
  • As a result of bullet number 1, I don't know which figure TT is wanting when asking the question; it could be FMV (which drives the economics of the deal), or it may be your adjusted basis of the property contributed.  Possibly @tagteam can provide guidance as to where this question leads to within TT.

This being an asset that was contributed to the partnership, and depreciable, there will be an entry for the property the partner contributed to the partnership and also, of course, another entry in the appropriate asset entry section of the program, the latter being in the Rental Real Estate section of the program.

TT Business Member Capital - "contributed property" question

I also agree, wholeheartedly, with @Rick19744 with regard to seeking guidance from a local tax professional since this is not only the initial 1065 filing, but the property contributed was formerly involved in a Section 1031 exchange. 

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