Seven years ago, Paul purchased residential rental estate that he has been depreciating as MACRS property over 27.5 years. This year, when his adjusted basis in the property was $250,000, Paul transferred the property to the newly formed PLA LLC in exchange for a one-third interest in the LLC. PLA incurred $10,000 of transfer taxes and fees related to the property. PLA must treat the $260,000 basis in the property, fees, and expenses, as new MACRS property depreciable over 27.5 years.

Question

Quizplus · Accepted Answer

The basis of the property in the hands of the LLC is the same as Paul's adjusted basis plus any gain recognized by Paul, and the depreciation continues as if no transfer occurred. The $10,000 of transfer taxes and fees are added to the basis but do not reset the depreciation period.

Seven Years Ago, Paul Purchased Residential Rental Estate That He