Discussion:Taxation Family Limited Ptr. Real Property

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Discussion Forum Index --> Advanced Tax Questions --> Taxation Family Limited Ptr. Real Property

Discussion Forum Index --> Tax Questions --> Taxation Family Limited Ptr. Real Property

Rowecpa (talk|edits) said:

23 November 2009
Assume a clients principal residence was transferred into a Family Limited Partnership. If this property were sold for a gain, is it a taxable event to the partnership, thus passing down to their individual tax return or is the exclusion applied? If it is taxable, can the property be transferred back to the individuals, then sold, and then the exclusion applied or do they have to requalify for the time lived in the residence, etc.

KathiJud (talk|edits) said:

23 November 2009
One of the complications of putting a personal residence into an FLP is that for tax purposes, it is now either rental property (rent owed by whoever continues to live there) or vacant investment property. Sale would be taxable just like any other rental or investment property.

Assuming this was an appreciated asset when it was contributed, the partner that originally put it in would be taxed on the sale if not held in the partnership at least 7 years. Code section 704.

It can be distributed back out and treated like a residence changed to a rent house that is then taken out of service and treated once more as a principal residence. I'd have to look up how much of prior time as a residence might still apply or if the clock starts all over again.

I would think that distribution could probably change up the owner % of the FLP and the partner may need to contribute something else to make up for what they took out if that is a problem.

Wiles (talk|edits) said:

24 November 2009
I got one of these. Still can't figure out why they did this. I don't even think they know.

DaveFogel (talk|edits) said:

24 November 2009
If the FLP was created for estate planning purposes, please note that transferring the decedent’s personal residence to the FLP has been held as a factor for invoking IRC §2036 and thus ignoring the transfers to the FLP for estate tax purposes. See, e.g., Estate of Hillgren v. Commissioner, T.C. Memo. 2004-46; Estate of Strangi v. Commissioner, T.C. Memo. 2003-145, aff’d. 417 F.3d 468 (5th Cir. 2005).

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