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

Discussion in 'Accounting' started by jawolter@gmail.com, Nov 22, 2005.

  1. Guest

    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!
     
    , Nov 22, 2005
    #1
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  2. Beverly Guest

    On 22 Nov 2005 02:03:16 -0800, 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.
     
    Beverly, Nov 22, 2005
    #2
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  3. Guest

    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...
     
    , Nov 22, 2005
    #3
  4. John Guest

    <> 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!)
     
    John, Nov 22, 2005
    #4
  5. Beverly Guest

    On 22 Nov 2005 07:19:31 -0800, 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.
     
    Beverly, Nov 23, 2005
    #5
  6. Guest

    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!
     
    , Nov 23, 2005
    #6
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