USA Reorganizing from a Sole Prop to Partnership

Jun 5, 2020
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United States
Beginning with the tax year 2021 we converted our Sole Prop farm (Schedule F) into a partnership,
requiring us to now file a 1065 with its own Schedule F. Even though the change is only organizational,
I have found some tricky challenges.
First, in both cases, vehicle expense is calculated as the business miles x the std. mileage rate.
In the Sole Prop case, the expense directly affects the Schedule F profit / loss and flows directly through to the 1040 gross income.
In the partnership situation, the expense is expected to represent reimbursements to the partner(s), which flows to the
schedule K's, and then to the 1040. Bottom line, the 1040 is the same in each case.
However, although our farm business falls below the threshold that requires a
balance sheet, the partnership 1065 has provision for entering the balance sheet,
and having an accurate balance sheet for a business is a good thing. Unless I actually
write a mileage reimbursement check to myself, which will depress my farm cash account, how do I
keep my balance sheet whole? Do I need to balance it with a commensurate equity contribution?
In a sense, I suppose, all the years when I filed the Sole Prop Schedule F
with the profit / loss flowing directly to our gross income, I was ignoring the cash outlay and equity cost of using
our personal vehicles for the farm - in effect, an equity contribution of sorts.
Secondly, upon starting the partnership, all Sole Prop assets became the property of the partnership.
Disregarding those that had no depreciable life left, the sole prop assets became our capital investment in the
partnership at their final depreciated value on 12/31/2020. My tax software allows these all to be entered
with an acquisition and service of 1/1/2021, which is technically correct, I guess, even though they were owned
by the sole prop for years. However, I notice that the asset class has changed in some cases, and of course,
the depreciation schedule has changed because most of these assets are MACRS 150DB. Does reorganizing into
a partnership really wipe the slate clean as far as depreciation schedules go?
Thanks for any insight and advice.

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