Depreciating Assets not in Business Name

[equinecpa]

I'm curious how other handle this-it seems to come up more and more these days what with banks getting tough on financing and not wanting to loan money to new businesses.

Scenario: Family Partnership (LLC) needs a tractor. The LLC has only been around for about a year and can't get financing. Partner's spouse (who is not a partner) gets the financing and buys the tractor. Partnership pays everything, just the paperwork is not in the partnership name. There is no "title" as not licensed over the road.

Would you have a problem with the partnership depreciating the tractor?

Same partnership also uses a trailer owned by the non-partner spouse, exclusively for partnership use. The partnership is making the payments. This trailer is titled for over the road use. Would you depreciate this trailer in the partnership? Charge payments to capital, and then record depreciation as unreimbursed partner expense?

Leasing the equipment to the partnership would be an option, but that might attract sales tax, and really the substance is that the LLC owns the asset.

So what do you do?

Carolyn

[Bees Knees]

I'm not concerned on a married filing joint return when one spouse uses the other spouse's assets in the business and claims depreciation on the asset, even though it is in the non-business owner spouse's name. When you throw in a partnership or a corporation, the asset must be contributed to the partnership or corporation before the business entity can claim depreciation on that asset. In other words, the partnership or corporation now owns the asset. In your scenario, the one spouse buys the asset and the other spouse contributes it to the partnership in exchange for a partnership interest, thus allowing the partnership to claim a depreciation deduction. Is this legal? Well, how did the one spouse buy the asset? Was jointly owned money used to purchase the asset? Did the spouse have any reason to purchase the asset other than to give it to the business for use in the partnership?

I think the answer is the title to the property is merely a technical issue that makes it easier for the partnership to acquire the asset. Clearly the asset was purchased for use in the partnership. A husband and wife often use joint funds to purchase assets, and for tax purposes, they can give assets to each other back and forth with no gift tax consequences. So from a tax standpoint, I don't have a problem treating this as one spouse buying an asset, gifting it to the other spouse, and then having the other spouse contribute it to the partnership, even though the title to the property may not reflect this. If you want to sleep better at night, perhaps something could be added to a written partnership agreement that reflects these transactions so that it is clear the partnership now owns the asset and is allowed to claim depreciation on that asset.

[taxea]

Why not just have the respective spouses and company engage in a Promissory Note for payments of the equipment. The company is paying for it so it can be registered to the company and the note would be an installment agreement for the items. This way they can be depreciated. This could be done even if the partner made a personal purchase and sold it on installments to the company.

[Bees Knees]

Why not just have the respective spouses and company engage in a Promissory Note for payments of the equipment.

Why not just say the spouse gifted the asset to the other spouse who in turn contributed it to the partnership. Wouldn't that be easier than drafting a promissory note?