Having a problem and hoping for some advice. I am not preparing the tax return for this client.
Client owns 3 entities:
Partnership A
SCorp B
SCorp C
Client and SCorp B are Partners in Partnership A
Client is sole shareholder in SCorp B and SCorp C.
Partnership A held Real Estate and the Mortgage Loan until the Client, against my strenuous objection, transferred the title of the Real Estate into SCorp B. The Mortgage Loan statements still show Partnership A as owing the Loan. The Lender agreed to the title transfer. The Real Estate is the collateral for the Loan.
Since the date of the transfer, SCorp B has been recording the rental income and expenses, and has been paying the Loan from its checking account.
Now the harder part.
I think the Real Estate is transferred out of the Partnership with this journal entry:
Building credit cost basis
Land credit cost basis
Accumulated Depr. debit
Equity debit
I think the Real Estate is transferred into the SCorp with a reversing journal entry equal to the above.
I believe this should be a tax-free transaction.
Transferring the Real Estate out of the Partnership A without also transferring the Mortgage Loan creates a terrible deficit in Equity for Partnership A.
Other info - Client has never run these separate entities as though they were independent of each other, and realizes that he gets no liability protection. Doesn't care.
Questions:
Is it "legal" to move the Mortgage Loan into the SCorp along with the Real Estate, even though the Loan is technically still in the name of the Partnership? The Real Estate is the collateral for that Loan.
Are there tax problems for doing this - transferring debt? Like I said, I'm not preparing the tax return, but the preparer will be using the compilation financial statements I'm preparing.
Thanks for any advice.
Client owns 3 entities:
Partnership A
SCorp B
SCorp C
Client and SCorp B are Partners in Partnership A
Client is sole shareholder in SCorp B and SCorp C.
Partnership A held Real Estate and the Mortgage Loan until the Client, against my strenuous objection, transferred the title of the Real Estate into SCorp B. The Mortgage Loan statements still show Partnership A as owing the Loan. The Lender agreed to the title transfer. The Real Estate is the collateral for the Loan.
Since the date of the transfer, SCorp B has been recording the rental income and expenses, and has been paying the Loan from its checking account.
Now the harder part.
I think the Real Estate is transferred out of the Partnership with this journal entry:
Building credit cost basis
Land credit cost basis
Accumulated Depr. debit
Equity debit
I think the Real Estate is transferred into the SCorp with a reversing journal entry equal to the above.
I believe this should be a tax-free transaction.
Transferring the Real Estate out of the Partnership A without also transferring the Mortgage Loan creates a terrible deficit in Equity for Partnership A.
Other info - Client has never run these separate entities as though they were independent of each other, and realizes that he gets no liability protection. Doesn't care.
Questions:
Is it "legal" to move the Mortgage Loan into the SCorp along with the Real Estate, even though the Loan is technically still in the name of the Partnership? The Real Estate is the collateral for that Loan.
Are there tax problems for doing this - transferring debt? Like I said, I'm not preparing the tax return, but the preparer will be using the compilation financial statements I'm preparing.
Thanks for any advice.