Hello,
I have a question about a capital contribution of a piece of equipment to a new 2 member LLC. (a transfer)
I believe I have figured out one thing. Please tell me if I'm right.
That repairs and upgrades done to the 2nd hand piece of equipment while still personal property will add to it's value for the transfer contribution. I assume this would be at Cost not FMV (This piece of equipment has never been used for personal use and was bought as the main piece of equipment to earn revenue in this business)
What I'm less sure about is if, after transferred, would this fixed asset be eligible for section 179? Or does the fact that it is a capital contribution and not a business purchase disqualify it? This is an old piece of equipment thats cost (at most around $20,000 after repairs and upgrades) that I think falls below the allowed threshold for sect 179, and would be taken all in one year if eligible. Our company is seasonal, so I understand that since the company was formed in the last quarter of 2023, that our income may not be enough to take it all, and it might be carried over.
Thank you so much ahead of time for clarification!
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A couple of comments:
See https://www.irs.gov/publications/p946#en_US_2022_publink1000107401
Its basis is determined either:
In whole or in part by its adjusted basis in the hands of the person from whom it was acquired......
Thank you for that info!
So, how I read this is, because the company did not purchase it, and because it was a contribution by one of it's owners, (related person) it is disqualified for any type of deduction on taxes.
I appreciate your fast response!
I'll page @Rick19744 but I believe the property would qualify, other than for Section 179, on the adjusted basis that is carried over to the partnership via the contribution thereto.
Thanks for clarifying. Im a little overwhelmed with accounting courses and tax info right now 🙂
A couple of comments:
I really appreciate your response.
So sorry I didn't see it yesterday. Didn't realize I was having phone issues till just now :(
I was hoping to have a clear grasp on this subject, but I'm realizing that I will definitely be getting extra tax help on our taxes this year. Maybe I can learn enough for next year!
Thank you for the info!
And I really appreciate how clearly you explained that!
You are welcome.
Hello again @Rick19744
I think it just occurred to me why this was so confusing to me.
I kept thinking that depreciating the asset over the allowed time in my accounting books was reliant on/connected to being able to take a depreciated deduction on my tax return. (and figuring out depreciation with the deduction formula)
So, am I right in assuming that, even though you may use the same formula for cost basis in both situations, depreciating in my books is not reliant on being able to take a deduction?
And, if you don't mind. One question that I think you would find simple.
How would you determine 'useful life' for a depreciation period on a 30+ year old piece of machinery that runs great and is receiving upgrades? I guess my question is, is 'useful life' (3 or 5 years allowed by IRS) connected at all to the age of the equipment? Or is that just a period of time allowed to take depreciation?
Thank you so much for your help! This question has been driving me crazy. And my research had not been clearing it up before your help!
I should clarify. I realize I can take depreciation expense per month on books/taxes.
But I was more referring to special deductions like Sect 179 not being related to being able to depreciate in my books.
Hope that makes sense 🙂 It almost doesn't to me :()
Some follow-up comments to your questions:
Thank You so much!
I am in an accounting course right now. And I am using the Accrual method. Debit, credit, accrue, defer etc, etc :(
And hoping I will be following GAAP guidelines perfectly! (much sarcasm there)
I am just learning but naturally determined, so we'll see how good I do.
I really appreciate your help and this info! Info is priceless!
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