Using section 754 election To match Step up basis, any experience

[Eric S.]

Hi All,

I am purchasing an apt building and purchasing 100% of the current shares of the llc that it is currently in. I am doing this for two reasons to avoid conveyance fee and to avoid county to reassess the property and doubling the annual taxes.

I am currently purchasing the LLC that the property is under. As a partnership myself being 95% owner and another one of my other LLC being 5% owner of the current LLC the property is under. I was told that if I forms partnership that I could do section 754 election That would allow me to set up the basis of the property to match the purchase price of 1.7 million.

I want to confirm this is correct and would allow me to do a full cost segregation at the price I am purchasing the property for and not have to include any of the depreciation the previous owner already took since I am currently taking over the llc the property is under.

Secondly,

since this is mid year I would not be responsible for doing a tax return for the months prior to me attaining the property and this would not have to pay taxes on the income collected  on the property nor would I need to pay any payroll roll taxes he currently pays one persons salary a property manager. Thank you all appreciate all advice, comments and suggestions! 

[Yonah Weiss]

Quote from @Eric S.:

Quote from @Yonah Weiss:

Quote from @Eric S.:

I am currently purchasing the LLC that the property is under. As a partnership myself being 95% owner and another one of my other LLC being 5% owner of the current LLC the property is under.

@Eric S. to clarify, are you purchasing the property from yourself (or an LLC that you own)?

If you are a partial owner, you would need to do section 754 step up of basis to the new purchase price. But if you are more than 50% owner, and just 'selling' to another entity that you own, that is considered a non-arms-length transaction, and you wouldn't be able to step up basis, or be able to take depreciation based on the new purchase price.

@Yonah Weiss. I am Purchasing the property from another owner, but It will be in the same llc as the previous owner (usually when I purchase the property I put it into a new llc). Because I am taking over the previous llc that the property is in didn’t know if it would change how I can do things. Hope this clarifies. Thanks! 

@Eric S. Got it. In that case you will not need a section 754 step up in basis. Buying 100% of the LLC is no different than buying the property from a depreciation perspective.

You can do a cost seg on the depreciation of the full purchase price.