Partnership 1065 Balance Sheet

[SFBOB]

Your thoughts please on book entry of depreciation. Client has 10 residential rental properties with this being first year as a Series LLC filing a 1065.
Prior years were reported on Schedule E with the form 1040. I am having a problem showing the correct capital account if I include the depreciation in the books and flow through to the balance sheet.Seems I should use the M1 as and adjustment for the depreciation.
Maintaining the capital account requires posting a distribution of cash, largely made available due to the depreciation adjustment.
Thoughts from experienced Partnership preparers will be appreciated. Thanks Bob

[Bees Knees]

Since this is a 1065, I assume you have an LLC with at least two members. If only one member owned the rental property prior to the LLC, then that property was contributed to the partnership at its FMV, with basis being a different number.

If that is the case, your balance sheet is going to reflect depreciation and basis using the FMV of the property at the time it was contributed to the partnership, while the depreciation listed for tax purposes is based on the adjusted basis of the rental property in the hands of the contributing partner just prior to the formation of the partnership. That will result in two difference numbers for book and tax depreciation purposes. Thus, an M-1 adjustment will be required.

[SFBOB]

Taxpayers MFJ

Bees Thanks for your professional opinion. Property was titled husband and wife in Oklahoma.1040 returns filed since 2002 with property additions over the last several years.
I had not given any thought to a change to FMV on 12-18-2007 when the LLC was filed with the state of Oklahoma. In that the filing was so close to 1-1-2008 I was not going to file for 13 days in 2007. Your continued thoughts please and thanks a bunch. Bob