I am currently working on a new client's tax return. In 2015 his parents transferred the business to my client (son and his wife) as of 12/31/2015. They sold the building and land to my client on an installment sale. The property was transferred by quitclaim deed. The loan and property is in my client's name.

I have done considerable amount of research on self-rental income and understand a loss would be considered passive and income is non-passive.

I also understand it's in my client's best interest to have the building and property outside of the business and the real estate should be held in an LLC and NOT in my client's name.

The following are my questions:

- Is it possible to add the real estate and the loan to the business books? Basically this would be done just to avoid self-rental. Depreciation and loan interest would all be recorded by the business. I think this could possibly lose the asset protection from separation of real estate and business. I realize this may not even be possible at all and/or just all around bad thought.

- My client is paying the loan through the business bank account. I thought I could use this amount as the rent expense if I set it up as "self rental". The loan payment amount is very close to FMV of the rent. However by reporting this way, after interest, depreciation and property taxes - there would be a rental loss.

Also my client's parents had basis in the S corporation as of 12/31/2015. My client did not pay his parent's for the stock. I understand that this transfer is subject to gift tax reporting based on the FMV of the stock. Can anyone provide me with a way to value the stock? I realize I could go through a certified valuation analyst but was wondering if there was another way. Originally I was just going to transfer my client's parents' basis to my client but then thought I needed to use FMV. Right?

I am posting this because I looking for feedback on how to best deal with the above situations and/or any feedback on something I may be not considering.