How to record Transfer appreciated rental property to LLC

[skyworks]

Hi, my client husband and wife owned rental properties for several years, for legal protection purpose, now they set husband and wife 50%/50% owned LLC's and transferred properties to the LLC.  IRS issued tax ID and 1065 tax return need be filed.

They are not in Community property state, assumed they cannot report rental properties on their Sch E as SML.

How should the transfer transactions record on LLC's book?

1. Record cost and original purchase date and accumulated depreciation at date of transfer?
2. How to record appreciation (FMV - Purchase Cost)? 

   Is there any recording required for the market value of the property in excess of cost or basis on the date of transfer.

1. Record mortgage payable the husband and wife (borrower) because the mortgage was not refinanced in LLC’s name.

  How to record the liabilities if mortgage for those not refinanced to LLC's name, still in owner (husband and wife's name)

Thanks in advance!

[sjrcpa]

Did they actually transfer the title of the real estate to the LLC? I'm puzzled how you can do that without the mortgage.

How should the transfer transactions record on LLC's book?

1. Record cost and original purchase date and accumulated depreciation at date of transfer?  Yes
2. How to record appreciation (FMV - Purchase Cost)? 704(c) built in gain-shows on the K-1

Is there any recording required for the market value of the property in excess of cost or basis on the date of transfer. Not if you're maintaining Cash Basis books.

[Accountant-Man]

How to record appreciated property when they are transferring properties TO THEMSELVES?

[BobKamman]

If you're not in a community-property state, it's more likely than not that you are in an ice storm right now.  If someone slips and falls on the rental's sidewalk, it's just not the LLC that gets sued, it's the individual owners, because why not?  Especially because it's financed by a mortgage just in their names.  But they will have nothing to worry about if they have adequate insurance coverage, same as if they had no LLC.  If they don't have insurance (to pay the legal fees, if not the claim) they will have learned that an LLC provides a false sense of security.  Do they have an umbrella policy, or even know what that is?  

[pamdory]

This is why I tell my clients they need to consult their attorney about whether using an LLC is actually going to accomplish what they think it will.  And consult their insurance advisor about whether that might be the better way to accomplish their goal.  The attitude of "Go ahead and set up an LLC, it can't hurt." actually does hurt when you're assuming it's going to do something it won't.

[skyworks]

Yes the deed were trasferred to LLC, but bot the mortgage. 

I was wondering are they any exceptions to the LLC owned by husband and wife in a non community property state, in which they can file as SML on there personal return?

They were told by friends whose CPA filed on their personal return as SML .:)

[skyworks]

Hi,

Anyone know if there is a real case law:  through "transmutation" by which the character of the property is changed from separate to community, then request to elect the LLC to be treated as SMLLC filing on their personal return.

[taxes96786]

An LLC owned only by husband and wife can still be filed on a sch E

[abctax55]

"....An LLC owned only by husband and wife can still be filed on a sch E"

What if they live in a non-community property state?

[IRonMaN]

Let me check pub 17 and I'll get back to you.

[abctax55]

Well, Jeff.... live & learn even at my advanced age.  I wasn't aware Pub 17 addressed state issues.

[IRonMaN]

You just need the special edition version.  If you have connections at Intuit or the IRS, you can get one.😁

[pamdory]

My office adjoins the IRS office, we share bathrooms.  I'm gonna see if I can get them to leave me a copy of the special edition version in the middle stall of the ladies room.  

[abctax55]

Pam.... you'll be using it for reading material, right?

[pamdory]

Ha!  You caught me!

I suppose I could read it...

[taxes96786]

Problem with that is Attorneys don't necessarily understand LLC tax law.

[taxes96786]

Then you have to research the IRS rules on community state properties.