Situation: client has been a single member LLC. Over the last few years, every fixed asset bought was depreciated thru sec 179 in the year of purchase. In 2013, LLC bought additional fixed assets in the Jan-March timeframe.
Client set up a sub S corp effective 1April2013 and began doing all business in the sub S that had been done in the LLC. LLC activity ceased 1April 2013. All fixed assets of LLC were transferred to sub S, including both pre-2013 fixed assets which had zero remaining basis and the fixed assets purchased by LLC in the Jan-Mar period.
Within the LLC there would be no 179 available on the 2013 purchases because in effect the fixed assets were sold in the same year purchased to the sub-S in exchange for stock. Fixed assets purchased and disposed of in the same year are not eligible for 179.
As for the sub S, the IRS publications say that property is not considered “purchased” if it is acquired by one member of a controlled group from another member of the same group. So it appears that the 2013 fixed assets purchased by the LLC and “sold” to the sub-S are not eligible for 179 within the sub-S since the corporation acquired the fixed assets from a member of a controlled group within the same controlled group.
It does not make sense to me that fixed assets purchased in Jan-Mar 2013 are not eligible in either company for 179. They should be eligible for 179 within one of the two entities. I hope I’m missing something. What do you think? We’re talking close to $500K of fixed assets, and the LLC and sub S have a combined profit of almost $2 million.
Client set up a sub S corp effective 1April2013 and began doing all business in the sub S that had been done in the LLC. LLC activity ceased 1April 2013. All fixed assets of LLC were transferred to sub S, including both pre-2013 fixed assets which had zero remaining basis and the fixed assets purchased by LLC in the Jan-Mar period.
Within the LLC there would be no 179 available on the 2013 purchases because in effect the fixed assets were sold in the same year purchased to the sub-S in exchange for stock. Fixed assets purchased and disposed of in the same year are not eligible for 179.
As for the sub S, the IRS publications say that property is not considered “purchased” if it is acquired by one member of a controlled group from another member of the same group. So it appears that the 2013 fixed assets purchased by the LLC and “sold” to the sub-S are not eligible for 179 within the sub-S since the corporation acquired the fixed assets from a member of a controlled group within the same controlled group.
It does not make sense to me that fixed assets purchased in Jan-Mar 2013 are not eligible in either company for 179. They should be eligible for 179 within one of the two entities. I hope I’m missing something. What do you think? We’re talking close to $500K of fixed assets, and the LLC and sub S have a combined profit of almost $2 million.
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