TP contributed residential rental property book value 26k FMV 75K and $5K in cash for 50% of LLC. Other member contributed $5K in cash for the remaining 50%. LLC elected to be taxed as partnership. What are the journal entries for this transaction?. TP also had unallowed losses prior to contributing the property. Can these losses be recovered?
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First off, why is this a 50/50 partnership when one guy puts in $5K and the other $80K worth of stuff?
You have two sets of books when you contribute appreciated property to a partnership. One set of books for tax purposes. One set of books for accounting purposes. The tax purpose books would record the appreciated property at its basis. In other words, you debit fixed assets $26K for the residential rental property and credit partner’s capital $26K. For accounting purposes, you would debit $75K for the residential rental property and credit partner’s capital $75K.
The difference between these two must eventually be reconciled through depreciation allocation, and allocating gain on an eventual sale. TTB starting on page 20-7 discusses how to do this reconciliation.
As to the partner’s un-allowed losses when contributing the property to the partnership, Section 721 says no gain or loss is recognized to a partnership or to any of its partners when property is contributed to the partnership in exchange for a partnership interest.
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