Transfer of Investment Property

[joanab29]

Jurisdiction

New Jersey

My parents have an investment property which has now come to its end for depreciation (27.5 years). They are elderly and would like to sell me the property for cost. They would hold the mortgage. For tax purposes my accountant suggested I may want to open a partnership (LLC) with them and have them own 50% and then wean them out a little each year. However, I'm not sure if that would start the clock over for depreciation. Can anyone answer this? Also, any agreement, disagreement or better option to go about this transfer? Goal is to avoid as much tax as possible for my parents while starting the depreciation clock over.

 

[adjusterjack]

If your goal is to scam the IRS, good luck.

 

[joanab29]

If your goal is to scam the IRS, good luck.

No that's not the goal. The goal is that my parents aren't going to make money, so I don't want them to have to pay capital gains.

 

[Tax Counsel]

My parents have an investment property which has now come to its end for depreciation (27.5 years). They are elderly and would like to sell me the property for cost.

What do you mean by "cost" ? What would the sales price be and what is the true fair market value (FMV) of this property? What is their basis in the property?

They would hold the mortgage.

So they are going to finance the sale for you? Will they charge you market interest on that loan? And after the sale will you actually take over management of the commercial property from them?

For tax purposes my accountant suggested I may want to open a partnership (LLC) with them and have them own 50% and then wean them out a little each year.

Meaning what, exactly? That you would buy more chunks of the LLC member interest each year from them? Just how elderly are your parents and what is their health? How much longer might they have to live?

 

[army judge]

If your goal is to scam the IRS, good luck.

The man is correct.

No one cheats, scams, bamboozles, or "cons" the IRS.

The IRS maintains exclusivity over scams, shams, bamboozles, cheats, and confiscation of money which people come to possess, even if that is done by backbreaking labor.

 

[army judge]

My parents have an investment property which has now come to its end for depreciation (27.5 years).

If your parents have a goal of GIFTING you the property, a trust (there are many forms of trusts) should be investigated.

You should have your parents discuss trusts with a competent trusts attorney.

Most large banks also offer trust creation services, staffed by their in-house counsel and CPAs.

A discussion with a trusted banks is another option.

The worse thing you or your parents could do is seek FREE advice when money, large amounts of money, are involved.

 

[flyingron]

You could start by explaining what it is you are trying to do. Are we talkign a sale or a gift? What do you mean by "at cost?" At what they paid for it? At what they owe on it? What?

The transfer to the LLC is a SALE no matter what share (or intent to do with the share) your parents have in it. They will need to address the capital gain/deprecation recapture no matter what. You don't need an LLC for you to start the deprecation clock over. If you buy the property and it qualifies for depreciation (just calling it an investment doesn't cut it. You have to rent it or otherwise use it in a business). You can depreciate the FMV of the buildings (capped at what you actually paid).

Thinly held LLCs (one or two members) are pretty much disregarded entities when it comes to tax issues.

 

[Tax Counsel]

The transfer to the LLC is a SALE no matter what share (or intent to do with the share) your parents have in it.

No, that's not correct. The details of the LLC and the transfer matter. Some transfers would be treated as a tax free contribution by the partner in exchange for the partnership interest. The devil is in the details, which is why I asked the questions I did earlier.

 

[Tax Counsel]

Thinly held LLCs (one or two members) are pretty much disregarded entities when it comes to tax issues.

And this too is not right. Two member LLCs (other than certain situations where the two members are a married couple) are not disregarded entities. They partnerships for federal tax purposes.

 

[txls]

You have an accountant. If you don't trust his/her advice, get another.