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, he transferred the property to the newly formed PLA LLC in exchange for a one-third interest in it. PLA incurred $10,000 of transfer taxes and fees related to the property. It 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 $260,000 basis in the property (including the $10,000 of transfer taxes and fees) does not reset the depreciation schedule to a new 27.5 years for MACRS purposes. The property continues to be depreciated over its original 27.5-year schedule starting from when Paul first placed it in service. The transfer to the LLC and the additional expenses incurred do not restart the depreciation period.

Seven Years Ago, Paul Purchased Residential Rental Estate That He