I've got a question regarding depreciation for a first year corporation. The shareholders transferred assets from a partnership into the corporation using the section 351 rules. How do I determine the basis of the assets that the partners are transferring into the corporation? If the assets are partially depreciated already under the old partnership, can the same cost basis, accumulated depreciation, and same depreciation method be used in the new corporation?
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Same basis, not sure about depreciation method
Hello,
I am assuming the partnership has been dissolved shortly after contributing the assets (very important to maintain the nontaxable transfer of Section 351), the basis of the assets received by the transferee corporation will be the partnership's basis per §362.
I wasn't sure about the depreciation method used by the Corporation so I pulled this from an article in the Journal of Accountancy:
"For example, when depreciable property is transferred to a corporation in a section 351 exchange, and the shareholder/transferor has not fully depreciated the property, the corporation must use the same depreciation method and recovery period that the transferor used. This rule, from section 168(i)(7), is applicable to the extent that the corporation’s basis is the same as the transferor’s basis in the property."
The article, here: http://www.journalofaccountancy.com/...nsistently.htm goes on to state that if there is a gain or loss on the transfer of property then the depreciation method may not necessary be the same method as the Partnership used.
This is quite a complicated, sensitive timing, issue. Make sure that all ducks are in a row and get those disclosures/engagement letters signed by the client.Circular 230 Disclosure:
Don't even think about using the information in this message!
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