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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2429
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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A husband formed an llc and placed 2 rental properties in

Customer Question

A husband formed an llc and placed 2 rental properties in it. He gave his wife 50% ownership at that time. A few years later he passed away. The wife now wants to sell one property. She wants to figure out her tax burden after the sale. How do you do that?
How do figure the basis, depreciation to recapture etc?
Submitted: 2 years ago.
Category: Tax
Expert:  ShawnA replied 2 years ago.
That depends on what the Llc has done as far as accounting.
I'll offer you a call and after we speak you will have to do some digging and then I'll be able to answer the question.
Customer: replied 2 years ago.
please explain here as I am not available for phone discussion. The wife was made 50% member in the LLC.
Customer: replied 2 years ago.
the llc was setup as a disregarded entity for tax purposes.
Expert:  ShawnA replied 2 years ago.
That's great. Additional information but it has no relevance.
Expert:  Anne replied 2 years ago.
Different expert here. I'm Anne and I've been preparing taxes for 27 years,and it will be my pleasure to help you today.
If, when the husband put his wife's name on the LLC, he pretty much "assigned" her 1 of the properties, and he took the other, then figuring the basis is fairly simple.
Her basis in the home that was "hers" doesn't change. However, she would inherit the other house at Fair Market Value on the date of death. (please see IRS Pub 527, page 7, at URL below:
and page 9 of put 551 at URL below:
If this was NOT the way that the LLC was set up, and they had joint ownership for BOTH properties (which is the usual case) you follow the same theory, meaning she would inherit 1/2 of each home at Fair Market Value. A little more complicated, but it can be done.
If you have any questions, please post them here and I'll be notified.
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Customer: replied 2 years ago.
the two properties were commercial units. the llc had each party as managing agents on the contents of the llc. so they shared responsibiltites., the husband had the properties listed in his name prior to forming the llc with the wife. when the wife sells what happens to the depreciation that the husband took before placing in the LLc and then the amount after the llc formation and the amount taken after his passing. ? what amount does she recapture? Does she have 2 basis amounts? one from her half at the commensament of the llc and another at the time of inheritance?
Expert:  Anne replied 2 years ago.
With the absence of proof that she had 1 property and he had 1, she will inherit 1/2 of each property at Fair Market Value (the depreciation he took before he formed the LLC doesn't play into the Fair Market Value price, since she wasn't part of the LLC then) and the other 1/2 of her basis will be the usual, cost plus expenses minus the expense of sale
She technically has 2 TYPES of basis for the properties. One is actual cost (which she will have to take into account 1/2 of the depreciation) and 1/2 is Fair Market Value. Then these are added together to get at the true basis of each property.
She will only have recapture on the half that she does not inherit, which could be little to nothing, since 1/2 of the properties' basis is Fair Market Value.
I hope this helps
I hope this helps
Expert:  Anne replied 2 years ago.
I see that I man not have made ONE piece of information clearly enough. (I generally review my answers if they are not accepted with in a day or so)
The depreciation that he took on the properties before he formed the LLC does not come into play on the 1/2 she inherits, since that will be at Fair Market Price, and that was the half I was speaking about when I stated that it doesn't come into play because it seemed like that was the half we were discussing. Still, I don't want any misinterpretations or for you to have incomplete information, so:
The OTHER half, the half that has to use usual basis of
cost plus capital expenses plus cost of sale less depreciation WILL use the pre LLC depreciation
Please let me know if you have any further questions
Customer: replied 2 years ago.
the husband had owned the properties for 23 years before he placed them in the joint ownership LLC. Two years afterwards he passed away, leaving the llc to his wife. He purchased in late 1970:s. is it possible he could have depreciated the total amount of both properties to a zero basis? if so, then his depreciation taken would have been forgiven, with the setup basis to FMV, upon the wife inheriting, and she would only be responsible any additional depreciation from the time of the formation of the LLC forward. Is this what your meaning?
Expert:  Anne replied 2 years ago.
yes, that is exactly what I meant.
If there is any depreciation taken in 2013 for instance, will give you the information you need.
The house SHOULD have been depreciated under MACRS for 27 1/2 years, so this would be very close to being totally depreciated.
Capital improvements are depreciated over 27 1/2 years also, so it's entirely possible that the properties are carrying depreciation for that, depending on when he made the improvements.
Again, you will have to look at Part III section A of form 4562 to see if there was any depreciation deducted in 2014
I hope this helps