topic LLC formed in 2016 by family members transferring in their ownership in a farm. LLC sold timber in 2017. Can "acquired date" of the timber be 2003 when it was planted? in Deductions & credits

LLC formed in 2016 by family members transferring in their ownership in a farm. LLC sold timber in 2017. Can "acquired date" of the timber be 2003 when it was planted?

wngsprd — Thu, 06 Jun 2019 14:30:10 GMT

The family members owned the farm in 2003 when the timber was planted and transferred their ownership to the LLC in 2016. Trying to determine if this is a capital gain or ordinary income. Thanks.

A couple of follow-up questions: 1) How was the farm orig...

Rick19744 — Thu, 06 Jun 2019 14:30:12 GMT

A couple of follow-up questions:
1) How was the farm originally held?
2) How was the ownership pre LLC determined?
3) Same owners and ownership pre and post contribution to the LLC?
4) Is this the sole activity of this farm?
5) How was the timber sold; did you cut it in the form of logs, firewood or pulp?

The farm was held by the heirs as "Estate of" their fathe...

wngsprd — Thu, 06 Jun 2019 14:30:14 GMT

The farm was held by the heirs as "Estate of" their father. Each owner/heir contributed his or her share of the farm/estate to the LLC for corresponding ownership shares, and they are the only LLC members, and the farm is the only LLC asset.

It is an agricultural farm that has timber sales only every 10 to 20 years as timber matures to pulpwood or full size. The timber was sold on the stump, a contracted price paid per acre of timber sold.

Thanks!

Ok Thanks. The reason I was inquiring about pre and post...

Rick19744 — Thu, 06 Jun 2019 14:30:15 GMT

Ok Thanks. The reason I was inquiring about pre and post LLC ownership is there are some complex rules regarding contribution of property. Based on your response, it appears that these do not apply so I will not address these.

Since you indicate that this is an active agricultural farm and the sales of timber are not a part of the farming activity and they only occur every 10-20 years, I believe that you have a solid position to claim the sale of timber is a sale of a capital asset; capital gain.

This means that the sale is reported on form 8949 and then this would be transferred to form 1065 sch K and K-1 on the applicable line.

The holding period of property contributed by a member includes the holding period of the contributing member. So based on your facts, if the property owners of the farm planted the trees in 2003, contributed the farm to the LLC in 2016, the LLC would take an acquisition date of 2003.