Need help Final LLC tax return in Turbo tax, no asset disposals

[Venkatesh]

I have a friend who has been using an LLC to manage 2 properties for the past 10 year usign Turbo tax

So they have 2 partners, Each of them has a property titled under their individual names (partner 1 owns  prop 1 and partner 2 owns prop 2).

But because they split the costs equally on both these properties, they created an LLC, LLC bank account and use LLC to create leases, pay expenses, collect rent etc. LLC issues K1s yearly to each of them. After 10 years, they decided to break up the LLC into 2 and take back their properties. Using zillow, redfin etc, one partner paid the other 10K to settle current equity differences between the 2 properties and they dissolved the LLC. Now they want to start reporting the individual properties they own under their own personal 1 partner LLC (or schedule E)

When trying to do a final return in Turbo tax, it wont let me NOT enter an asset disposal. but no assets were sold. We just need to transfer all the accumulated depreciation etc for each property from the combined LLC to the new individual LLCs.

Does anyone have any ideas as to how we would close the final turbo taxes for the old LLC to call it a final return and then enter accumulated depreciation totals from old LLC to the new LLC in turbo tax

Thanks a lot in advance for any help

Venkatesh

[AliciaP1]

The assets are classified as liquidating distributions to each partner.  Use the FMV that was determined when the equity was settled.  This is then the value is then compared with each partner's basis in the partnership to determine the FMV to the individual LLCs.

To report the final Partnership return and the distributions you can follow these steps in TurboTax Business:

1. Within your tax return under the Business Info tab and About Your Business, ensure the Type of Tax Year is correct
   • If the partnership dissolved during 2022 this should read Short Year beginning January and ending XXX
   • If the partnership was dissolved on 12/31/2022, this should read Calendar Year
2. The Has an Ownership Change line should say Yes
3. Continue until you get to the About Your Business questionnaire screen
4. Answer Yes to Is filing its final return because it was closed by the end of the year
5. Under the Partner/Member Information on the Partner Summary screen click Edit for each partner and Continue to the Partner Capital screen
6. Enter the liquidating Cash Distributions and the liquidating Property Distributions
7. Click Done and Continue to the Date of Ownership Change and enter the date of dissolution
8. Under the Federal Taxes tab and Income, scroll down to Dispose of Business Property and click Start
9. One the Select Disposed Asset screen, click Select for each asset
10.  Mark Sold
11. Enter the dissolution date and the FMV on the next screen 
12. Proceed entering/reviewing your return.

[Venkatesh]

Thanks Alicia for your detailed reply

Couple of questions

In tell us why you stopped using this asset, Should I say townhome was Sold even though it was not really sold but went back to one of the partners. I did mark it as sold, but it comes out to a zero gain for each property

My understanding is that we need to have an explanation sheet with the 1065 stating that each property is being transitioned to one partner and going forward they will take over the depreciation schedule for that property. Similarly an explanation sheet with the new tax return saying depreciation is being taken over from the previous LLC account.

The 1065 is generating form 4797 even though no actual sale took place. I assume this is ok as will be explained in the cover sheet with the 1065 tax return.

My understanding is also that on the new tax return for each member, Turbo tax may not allow us to use a Placed in Service date before the LLC start date and I will need to use the forms to update the placed in service date instead of in the step by step

Thanks again for your help with this

[AliciaP1 · Accepted solution]

Listing the property distributions on the Form 1065 as well as the sales that report on Form 4797 denotes to the IRS that the partnership distributed the properties to the partners and the values assigned.  If the FMV sales price does not result in a gain against the depreciated values of the properties, then the $0 gain on the partnership return is correct.  No other document needs submitted with the Form 1065 as an explanation.

The basis in the property to the new LLC is that of the partner who received it in distribution.  That is the value the asset gets added to the new LLC at and depreciation starts over from there.  If the value of the property was in excess of the partner's basis prior to the distribution, then the value is limited to the value of the partner's basis in the partnership.  See Partner's Basis for Distributed Property in Publication 541 from the IRS for more details.

@Venkatesh

[Venkatesh]

Thanks, Alicia

I used the original contributed values as the values distributed out of old LLC And into new LLC to avoid confusion of any gains since there is no actual sale. The eventual sale will use the original basis and the complete depreciation anyway. Thanks for your answers