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Checkup --> journal entry for contributing capital to company with accum. depreciation.

 
 
jawolter@gmail.com
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      11-22-2005, 10:03 AM
Hello. Can I have a confirmation that this journal entry makes sense. I
am contributing capital to a company. It is real estate with
accumulated depreciation on it.

(property is valued at $69,000 with 5,000 of accum. depreciation on the
books. Ownership does not "completely change" as the company owners and
the previous property owners are the same -- so no taxable event I
think)

Is this right?

Fixed Asset (Real Estate) + 69,000 Dr.
Accum. Deprec. + 5,000 Cr.
Contributed Capital +64,000 Cr.

So the contributed capital is reduced by the amount of accum.
depreciation on the books. This seems to make sense, because if i was
instead selling the property, my cost basis would decrease by accum.
depreciation... so the equity I "have" in it decreases as well when I
contribute it to a company.

Thanks!

 
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Beverly
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      11-22-2005, 01:34 PM
On 22 Nov 2005 02:03:16 -0800, (E-Mail Removed) wrote:

>Hello. Can I have a confirmation that this journal entry makes sense. I
>am contributing capital to a company. It is real estate with
>accumulated depreciation on it.
>
>(property is valued at $69,000 with 5,000 of accum. depreciation on the
>books. Ownership does not "completely change" as the company owners and
>the previous property owners are the same -- so no taxable event I
>think)
>
>Is this right?
>
>Fixed Asset (Real Estate) + 69,000 Dr.
>Accum. Deprec. + 5,000 Cr.
>Contributed Capital +64,000 Cr.
>
>So the contributed capital is reduced by the amount of accum.
>depreciation on the books. This seems to make sense, because if i was
>instead selling the property, my cost basis would decrease by accum.
>depreciation... so the equity I "have" in it decreases as well when I
>contribute it to a company.
>
>Thanks!


When you say that ownership does not completely change, does this mean
the company is a sole proprietorship? Is the deed being transferred
into the company's name?

I know that your contribution would result in wiping out the
accumulated depreciation on your end, but I am not so sure the company
would transfer it in with your depreciation. Normally, it is FMV or
BV, not cost to the original owner.

I guess I need more info.
 
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jawolter@gmail.com
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      11-22-2005, 03:19 PM
Consider the couple married and the company (LLC) owned by the couple.
So I believe there is no taxable event. The deed would transfer to the
company's name. For this case, I don't think the depreciation
dissapears...

 
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John
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      11-22-2005, 05:25 PM
<(E-Mail Removed)> wrote in message news:cwa.googlegroups.com...

> Consider the couple married and the company (LLC) owned by the couple.
> So I believe there is no taxable event. The deed would transfer to the
> company's name. For this case, I don't think the depreciation
> dissapears...


and you would be wrong.
although still a partnership for tax purposes it's a change in entity
and the "contribution" must be at FMV and holding real estate in an LLC
will have future tax consequences, consider getting real tax advice
(not cyber opinions!)

 
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Beverly
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      11-23-2005, 01:04 AM
On 22 Nov 2005 07:19:31 -0800, (E-Mail Removed) wrote:

>Consider the couple married and the company (LLC) owned by the couple.
>So I believe there is no taxable event. The deed would transfer to the
>company's name. For this case, I don't think the depreciation
>dissapears...


Keep in mind that business and personal do not mix and attempting to
carry over depreciation is quite unusual.

I'd think the rundown would go something like this:

Let's assume the FMV is $72,000 (real estate tends to appreciate).
Since you've been depreciating the property, I'll assume it was
investment property.

Your personal books:

Investment in LLC $72,000
Accum Deprec. $ 5,000
Investment Property $69,000
Gain on Investment $8,000

Now let's say that transfering the deed, etc.. costs the LLC
something... say $3,000.

The LLC's books:

Real Estate $75,000
Capital Contribution $72,000
Cash $ 3,000

Speak to your tax accountant. It appears to me that, if you do things
properly, you are going to have a personal gain since you've
depreciated the property and real estate tends to appreciate.
 
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jawolter@gmail.com
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      11-23-2005, 02:43 AM
you all have been quite helpful. some family actually did this a few
years ago and paid the tax accountant and all, I'm going to talk to
them and get to the bottom of this issue. Thanks!

 
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