Tax question on personally owned building used in partnership

okc, OK · Member since 2018 · 2 posts · 0 votes

I bought a building personally that is being used in our partnership. The building is used for softball batting practice, lessons, camps, etc. I understand the basis rules for depreciation (lower of cost or market). What I don't understand is putting the building on the balance sheet or not. I never physically sold or gifted the building to the partnership. It uses it and does not pay me rent. So should it go on the balance sheet (my state requires one)? If I don't place it on the balance sheet and depreciate it on the Form 1065, do I put it on my personal taxes under the Schedule E for depreciation purposes?

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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
8y
@Bruce Chenowith

Depreciation rules of "lower of cost or market" is applicable when the property is used personally and then converted to a business property. If the building was always used a business property - I would depreciated it over its cost basis.

You should look to transferring the property to the partnership. You may run across issues later on if the building is eventually sold. When it is sold - the proceeds of the sale will be reported under your SSN.

Your partner's would also get some comfort knowing that the property is owned by the partnership and not you personally.

Reporting no assets on the partnership return causes many issues. It will raise a red flag to the IRS if you take depreciation on the return because depreciation shouldn't be taken unless there is an asset.

If you do as you say - take the depreciation on your schedule E - what happens to your partners. how will they end up taking the depreciation on their return.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
8y
@Bruce Chenowith
I have to assume that the building was specifically purchased for the partnership's use, and it was titled in your name for logistics purposes. If so, there should have been a partnership resolution authorizing you to make a purchase on behalf of the partnership and the partnership formally accepting financial responsibility for it.
It is then considered a partnership asset, belonging on the balance sheet and treated as partnership's for all other purposes, including depreciation. All the income should be paid into the partnership, and all the expenses should be paid out of the partnership.
If some of the expenses have been already paid by you, the partnership needs to reimburse you for these expense.
It is better - but not required! - to transfer (deed) the title into the partnership, however it can create complications with the lender and the insurer, so check with your attorney on this one.
Now, if you already owned and used the building and then later decided to let the partnership use it - things are more complicated.
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Bruce Chenowith
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okc, OK · Member since 2018 · 2 posts · 0 votes
8y
Building was purchased with cash so there won't be any complications with the bank on deeding it over.
Building was purchased by me and my buddy, our names are on the deeds, and we purchased it for the sole purpose of using it in the business. No personal use beforehand.
I think I will treat it as an asset owned by the business and therefore placing it on the balance sheet. I don't know how else I would handle it. Like Basit said, how can 2 people take the depreciation on their respective 1040s? I guess I could utilize the "unreimbursed partnership expenses" on the schedule E, and split depreciation expense in half with each of us, but that is complicated.
Thank you both for responding @Basit Siddiqi @Michael Plaks
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