Real estate investors often contribute rental property when they join a new or existing partnership or limited liability company (LLC) taxed as a partnership. Converting your property into a partner’s share or member’s interest is a two-step process: First, take your property off your Form 1040; then add it to your group’s Form 1065 using TurboTax Business (available for Windows).The partnership will then use Form 8825 to report income and deductible expenses for each property owned by the partnership.
Removing your property from your personal return
To “dispose” of your property in TurboTax, enter it as a sale with no gain or loss. The “sale” price will be the adjusted basis (cost less accumulated depreciation). You’ll also use this same number as (1) the value of your contribution to the partnership, and (2) the basis of the property on the partnership’s return.
For example, if you contributed a $100,000 rental property with accumulated deprecation of $60,000, your adjusted basis would be $40,000.
To report this in TurboTax follow the instructions in “I sold my rental property. How do I report that?”
Add your property to your partnership return
To enter Rental Property for a Partnership in TurboTax Business:
- OpenTurboTax Business and start or continue your Partnership tax return
- In the Introduction section under the Business Info tab, be sure you have identified the Type of business as Rental Real Estate and the Product or service provided as either Residential property, Commercial real estate, or Residential and commercial whichever is applicable to your partnership
- Under the Business Info tab and About Your Business you'll enter your rental properties and can start by selecting Add A Property here
- Enter the details of your property on the Property Type and Location screen and mark the applicable boxes (if any) on the next screen
- Repeat steps 3 and 4 until all your rental properties are entered
- If the property is newly contributed by a partner/member, you need to enter the contribution to the partner/member capital account in the Partner/Member Information section
- Remember to use the basis of the property to the partner/member contributing it as the contribution value
- To enter the Rental Real Estate Asset (the building and land) go to the Rental Real Estate section under the Federal Taxes tab and select Start to enter your property and its income and expenses
- Select Start under the Rental Real Estate Assets (Depreciation) to enter the assets associated with the specific property
- To enter assets for other properties, you need to select Edit or Start for each separate property so its assets are associated with the right property
- Enter the total value of the property (either the purchase price or the basis of the partner/member contribution if it was contributed) and break out the purchase price or basis of the land specifically, since land doesn't depreciate
Lastly, you can switch to Forms mode by using the Forms icon in the upper right of the screen. In this mode, you can review your Form(s) 8825, which details all your income and expenses for each property.