What are the options for transferring non-cash assets from a sole proprietorship converted to a two-member LLC? Can the sole be closed down and LLC opened "new" and assets from shareholder transferred from personal use at fair market value to LLC as a shareholder investment? Or if assets were fully depreciated during sole operation are they required to be entered into LLC at same basis? What about selling to LLC?--then would have to declare gain in sole but asset could be valued at cost in LLC? What is the legal directive and if there are options, which is best?
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Generally when you contribute assets to form a partnership or a corporation, it is a tax free exchange. Basis carries over from the sole proprietorship to the new entity.
There is an election for partnerships that may allow you to step up basis to FMV, depending on circumstances. It is explained in the partnership tab of TTB.
You could also sell assets to the partnership or corporation so that the new business entity can depreciate the assets at their FMV. However, I think that would not be smart since selling the assets to get step up in basis means you pay tax on the transfer.
What is the point of paying tax on something simply to allow you to deduct depreciation?
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