Discussion Archives:Contribution of Appreciated Real Property to FLP

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Discussion Forum Index --> Advanced Tax Questions --> Contribution of Appreciated Real Property to FLP

Discussion Forum Index --> Tax Questions --> Contribution of Appreciated Real Property to FLP

TxCPA2010 (talk|edits) said:

This question is a little different than other threads I could find on this Forum.

Facts: (A) "P" = Parents, “C”=Children, (B) “P” forms new FLP contributing real property only, subject to debt recourse to “P”, (C) Coincident with the formation and contribution, “P” allocates 95% FLP interest to “C” based on FMV of equity in real property. No discount taken. “P” are GP’s and control all aspects of the FLP subject to terms of the FLP Agreement, (d) The allocation of 95% LP interests to “C” deemed gifts. Individual amount of gift to “C” under the limit for annual giving, and (E) After contribution, 100% of debt still recourse to “P”.

Numbers - FMV of Property = 1,000, Debt (Recourse to "P") = 900, Equity in Property = 100

Adjust Tax Basis of Property = 400 being Land of 300 and Bldg 100

Precontribution Gain = 600, Debt in Excess of Basis = 500, Value of Gift = 95

Issue #1 – What is the Basis of the land and building on the books of the FLP? I think Land is $300, Bldg is $100, and Precontribution gain of $600 allocable to “P”. For Book purposes, “P”s Capital Account is prior to allocation to “C” is $100. Do you agree?

Issue #2 – For Book Capital purposes, on allocation of 95% of FLP to “C” as LP’s, a 95% share of “P”s Book Capital Account ($95) is transferred to “C”, so after Transfer/Gift, the Book Capital of “P” = $5 and the Book Capital of “C” = $95. Do you agree?

Issue #3 – What is “P”s tax basis in Ptsp interest prior to gift? I think the Tax Basis = $500) being $400 adjusted tax basis of property contributed less $900 in debt transferred to FLP. I think the Adjust Tax Basis = After allocation of all of the Recourse debt to “P”, their Adjusted Tax Basis of their Ptsp interest is $400. Do you agree?

Issue #4 – What is Tax Basis Ptsp Interest of “P” and “C” upon the allocation/transfer of 95% interest in the FLP?

Issue #5 – For Book, items of income, gain, loss and expense are allocated prorate to maintain capital accounts in according with the economic relationship of the partners. How would you handle allocations for tax, including what little is left of tax depreciation on contributed assets?

Issue #6 – Does any activity reduce the amount of the Precontribution Gain?

Issue #7 – Would you agree there is a step-up in basis and corresponding elimination of a portion of the Precontribution Gain upon the death of a “P”

I haven’t found in resources that tracks these issues clearly. So any help or direction is appreciated. Thank you in advance.


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