transfer property to LLC

We have a client that transferred some properties from HIS personal ownership to a LLC with himself and his 2 children as members ( 3 members, all over 18). His current CPA has rubbed their chin and said he has a lot of work to do with capital gains/losses calculation.



My understanding is that the property will transfer at the same value, so there will be zero effect. Our client is concerned that we will have to make an additional charge because of this.

Sec. 721 controls this...I guess it depends on all the facts.

Sec. 721 controls this...I guess it depends on all the facts.

Thanks JR1. My response is below.

Hi,

There is zero gains and losses for contribution of property to a partnership.
https://www.law.cornell.edu/uscode/text/26/721

However, the parent and his two children all have equal ownership (I assume),
so the value of the property is now shared amongst them. This is a gift
from the parent, and the value of the property will reduce his unified federal
gift and estate tax exemption, after the subtraction of the annual gift exclusion.

The value of the property for each of the two children will be the same
as that of the parent.

Depreciation deduction can now be used against income.

When and if the property is disposed or sold, tax owed on any gains will
be reported on the tax returns of each of the three owners.

juro

This is a transfer to a related party, so gains and losses are not allowed by the IRS.
Also, there is zero gains and losses for contribution of property to a partnership.

I guess it depends on all the facts.

For instance, is there any debt?

Don't assume equal ownership of capital or income.
Get the operating agreement OR have one drafted.
There are some great discussions where Jeff lays out the dynamics of capital vs. profit ownership.

There is a way to do this without any gift or income tax effect.

Don't assume equal ownership of capital or income.
Get the operating agreement OR have one drafted.
There are some great discussions where Jeff lays out the dynamics of capital vs. profit ownership.

There is a way to do this without any gift or income tax effect.

How?

There are some great discussions where Jeff lays out the dynamics of capital vs. profit ownership.

viewtopic.php?f=8&t=11093&p=103316&hilit=profits#p103316

Here's one to start. Search for others. I'm not going to do your work for you.

Sec. 721 controls this

But in what fashion?

Is it like this: Deemed gift of the properties from dad and kids, with dad then contributing his share of each property and kids contributing their share of each property?

Or, is it like this: Dad forms a single member LLC and then gifts ownership interests in the LLC itself to the kids?

Does 704(c) come into play?

What about the investment company rules?

Thanks, CaptCook.