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I have two companies. One is an S Corporation and one a 1065…

I have two companies...

I have two companies. One is an S Corporation and one a 1065 Partnership return with my husband. We transferred one building that we had in the S Corporation to the Partnership but I am unsure of how to do the journal for that and what I put it on the new depreciation report as. I've been reading and some say fmv others say keep it the exact same as it was on the previous company. Any insight on this would be great!!

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

We just did a quit claim deed on the property transfer. $10 was exchanged.

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3/12/2018
Stephen G.
Stephen G., Sr Financial Expert
Category: Finance
Satisfied Customers: 7,469
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Customer reply replied 5 months ago
Okay thank you! I would like to know how to deal with the transaction on both the S Corp side and the Partnership side.

Are both entities, the S-Corp and the Partnership owned solely by you & your husband?

Was their a business reason that you made the transfer?

Is there anything else in the Partnership besides the Real Property?

What was the date of the transaction?

Steve G.

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Customer reply replied 5 months ago
The S-Corp is just owned by me and the Partnership is just my husband and I. All of our other buildings are in the partnership so we wanted to take out the one building in the s corp. Basically my S corp rents the buildings/land out from our Partnership. The building was paid off completely. The date of the transaction was 12/29/2017.

OK, I presume that you file a Joint personal income tax return.

S-Corp.

You would account for the removal of the real property by recording a distribution to you personally .

Hopefully you have an allocation of the Real Property between Land (which is not depreciable) & Building. Also, I presume that you have been depreciating the Building.

So on the books of the S-Corp, you would:

Debit the Accumulated Depreciation

Debit Your Capital Account**

Credit the Land & Building Accounts

These amounts would all be based upon the cost figures on the books of the S-Corp.

** This amount would be for the net book value of the real estate & would be equal to the difference between the other accounts.

On the Books of the Partnership:

You would make the same entries in reverse:

Debit the Land & Building accounts.

Credit the Accumulated Depreciation

Credit your & your husband's Capital Accounts equally if

the Partnership is a 50 / 50 partnership.

You would continue with the same exact depreciation schedule as you were using on the S-Corp.

Questions?

Steve G.

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Customer reply replied 5 months ago
Thank you so much! So it's basically treated as a distribution to myself in the S Corp and then contributed capital in the partnership between my husband and I? And yes the land is separate. Now what about building renovations that were added later and also need to be removed?

That's Correct, I was just about to explain that also; a Distribution to you on the S-Corp and a Contribution to Capital on the Partnership.

As far as the Building Renovations [done while the property was in the S-Corp(?)], you should treat them the same way, in the same journal entry, which would increase the distribution & the capital contribution by the net book value of the improvements.

S-Corp description:

To record distribution of Real Property to Owner.

Partnership description:

To record capital contribution of Real Property by Partners.

Please remember to rate my response as that is the only way the SITE will credit me for assisting you today.

Thanks very much,

Steve G.

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Customer reply replied 5 months ago
Okay I'm having one more problem. On the tax program how do I make it to where it is not showing a loss?

I'm not sure I understand what you are referring to?

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Customer reply replied 5 months ago
Okay I figured out that problem. I am using Turbo Tax Business and I can choose the give it away option which allows me to put it through the dividend distribution account on the S-Corp however, it is not showing the accumulated depreciation going away like I would have to do to take it off of the books. Not sure how to handle this.

Well, I guess we are talking about two different things.

I thought we were dealing with how to record the transaction on your books for the two entities.

As far as the tax return is concerned are you bringing your figures over from your books to the tax return or what method are you using to prepare the tax return?

As far as the tax return is concerned, you should be able to record the ending figures for the balance sheet & simply eliminate the real property from the S-Corp depreciation schedule.

Steve G.

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Also, I presume that the partnership won't have any depreciation for this property for 2017?

Steve G.

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Customer reply replied 5 months ago
No I would assume not since the transaction was on 12/28/17. I am just working on the S Corp side of it now.

OK, I know you knew that, I just thought the tax program might cause a problem & it was just something to check as it might not be readily apparent as you have other properties in the Partnership.

Steve G.

Stephen G.
Stephen G., Sr Financial Expert
Category: Finance
Satisfied Customers: 7,469
Experience: Extensive Experience with Tax, Financial & Estate Issues
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Customer reply replied 5 months ago
Thank you! Hopefully one last question for you. What date do I put on the asset report on the Partnership side? The date it transferred or the original date? Thanks!
Customer reply replied 5 months ago
Here is the problem I am running into. First I can't keep the original date because the Partnership didn't start until April of 2013 and the S-Corp put the building on the books in 2011. So then I put in the transfer date of 12/28/17. The problem I'm having then is that when I made the entry on the Partnership books I debited the building account credited the accumulated depreciation account and put the other through capital accounts. Now on the return I can't show accumulated depreciation because I put the date of 12/28/17. So my numbers won't match.

Here's the issue.

When a related party (you and/or you husband) transfers assets from one commonly owned business to another; the tax basis carries forward;

So, there's not necessarily any problem with the dates as long as they result in the accurate straight-line depreciation.

Bringing the accumulated depreciation over insures that there's no future question question that the basis was carried forward properly;

If you disregard the accumulated depreciation on the books of the partnership, and use the net book value, then you must reduce the class lives so that the remaining straight line depreciation is the same on a year to year basis as it was in the S-Corp.

So, one way or another something is going to look amiss. You can always use "various" for the dates and just make sure the annual depreciation is the same over the remaining useful life or however you choose to reflect it.

Personally, I prefer to carry the Accumulated Depreciation forward as that reflects the accurate dates; the fact that the building acquisition date is before the Partnership formation is no big deal in these circumstances.

That's why we refer to accounting being an ART not a Science.

Steve G.

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Customer reply replied 5 months ago
Thank you so much for all of your help. I was able to put the date from the previous schedule on the asset and carried forward the accumulated depreciation as I should. You have answered all of my questions perfectly!Thanks again!

Great, glad I could assist you.

If you'd like to reach me again here at JustAnswer.com, just indicate "For Steve G" at the beginning of your question.

Thanks again,

Steve G.

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