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When a partner contributes depreciated rental property to a…

Hi, when a partner...

Hi, when a partner contributes depreciated rental property to a partnership, does the partner report anything on partner's individual tax return? Such as a transfer or disposition on Form 4797?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

Two individuals own a rental property and reported activity in prior years on Schedule E of their individual Form 1040s. For legal liability purposes they form a multi member LLC (taxed as a partnership) and contribute the rental property to the partnership via quitclaim deed. The mortgage on the rental property remains in the name of the individual partners, but the LLC assumes and makes all the mortgage payments. All rents received and expenses related to the rental property transact through a bank account in the LLC's name. In the year the rental property is contributed to the partnership do the individual partners have to report the "property contribution to the partnership" on their individual Form 1040's? If so, how is it reported?

Accountant's Assistant: Is there anything else the Accountant should be aware of?

I don't think so.

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Answered in 6 minutes by:
1/18/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,206
Experience: Taxes, Immigration, Labor Relations
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Contribution the property to the partnership is regulated by section 721

https://www.law.cornell.edu/uscode/text/26/721

(a) General rule

No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.

Thus - partners do NOT report disposition of the property in such situation.

You will find regulations here

https://www.law.cornell.edu/cfr/text/26/1.721-1

Let me know if you need any help.

Lev
Lev, Tax Advisor
Category: Tax
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Customer reply replied 1 month ago
Thank you, ***** ***** began receiving the rents and making all payments and disbursements relative to the rental property from the LLC's bank account as of January 1, 2017. The rental property itself was deeded to the LLC via quitclaim deed in July of 2017. However, the LLC was formed in 2016 and the operating agreement executed in 2016. It states that the partners " have or will contribute property......" but does not specify a date of contribution. There was no activity in the LLC's 2016 bank account relative to the rental property in 2016, the individual partners paid all disbursements individually in 2016, the 2016 rental activity was reported on Schedule E of each partner's 2016 individual income tax returns. Can the partners treat the contribution of property as being made January 1, 2017 and file a Form 1065 for 2017 to include all the rental activity for 2017 on the Form 1065?
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