Partners disagree on basis

Technical topics regarding tax preparation.
#1
keiser  
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4 partner LLC holding real property. 2 members are retirement accounts; 2 are individuals. The retirement members wish to minimize deductions and argue that certain expenses should be added to the basis of the property; the individual members prefer to deduct the expenses. Either position could be fairly debated. The split is 50/50. How to prepare the 1065 with this conflict?
 

#2
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You should tell them that you cannot move forward until they come to a consensus and instruct you on what position(s) to take.

Couldn't the retirement members agree to give the individuals their depreciation? Operating agreement may need to be modified -- allocations and substantial economic effect language, etc... That might be a compromise going forward, although it will even out in the end.

My understanding is that a rental activity isn't considered UBIT and leveraged real estate is exempt from UDFI? What are the retirement partners worried about?
 

#3
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Is there one managing member? If so, what does the managing member say?
 

#4
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ManVsTax wrote:Couldn't the retirement members agree to give the individuals their depreciation? Operating agreement may need to be modified -- allocations and substantial economic effect language, etc... That might be a compromise going forward, although it will even out in the end.


This is a reasonable approach. However, what the retirement account partners should be most interested in is cash flow. Whether an expenditure is capitalized or not doesn't affect cash flow.
Capitalize now, increases taxable income now. Decreases capital gain later, presumptively.
Deduct now, decreases taxable income now. Increases capital gain later, presumptively.
Cash flow is the exact same both ways without any elaborate special allocations of tax deductions between partners.
~Captcook
 

#5
Dennis2  
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My understanding is that a rental activity isn't considered UBIT and leveraged real estate is exempt from UDFI


I kind of remember that there is an exception for property subject to a non-recourse loan.
 

#6
sjrcpa  
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Rental income from Debt Financed Property generates Unrelated Business income.
 


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