Depreciation recapture taxes in a partnership

Tax, SDIRAs & Cost Segregation
7yFollow

Depreciation recapture taxes in a partnership

Faith K.
Professional · Minneapolis, MN · Member since 2014 · 3 posts · 0 votes

I have heard two different opinions recently regarding depreciation recapture taxes in a partnership. Let's say Investor A is part of an LLC with Investor B that owns an apartment building. Investor A is assigned the depreciation (because Investor A has owned some apartment buildings for 30 years and can't claim any more depreciation on them). After 10 years, the project is refinanced and Investor B redeems Investor A's ownership in the property. Are the depreciation recapture taxes due at that time?

Or if Investor B owns the property for another 20 years and then sells the property, are depreciation recapture taxes then due at the time of sale for both the portion assigned to Investor A in the first 10 years and then for the remaining 17.5 years? 


What exactly triggers the depreciation recapture taxes?  Exiting a partnership or a sale? Any experience or knowledge on this topic would be much appreciated! 

0Reply
37 views

3 Replies

Jump to latestLatest
  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    7y

    Specifically how is the "redemption" of A's ownership structured? Do we assume there are just two partners in the partnership.

    0Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    7y
    Originally posted by @Faith K.:

    I have heard two different opinions recently regarding depreciation recapture taxes in a partnership. Let's say Investor A is part of an LLC with Investor B that owns an apartment building. Investor A is assigned the depreciation (because Investor A has owned some apartment buildings for 30 years and can't claim any more depreciation on them). After 10 years, the project is refinanced and Investor B redeems Investor A's ownership in the property. Are the depreciation recapture taxes due at that time?

    Or if Investor B owns the property for another 20 years and then sells the property, are depreciation recapture taxes then due at the time of sale for both the portion assigned to Investor A in the first 10 years and then for the remaining 17.5 years? 


    What exactly triggers the depreciation recapture taxes?  Exiting a partnership or a sale? Any experience or knowledge on this topic would be much appreciated! 

     Unfortunately, you are not being detailed enough. Not your fault, you just do know what to share.  I think we are getting into the 704 section here and a lot more question needs to be answered.

    When you say "Investor A is part of an LLC with Investor B that owns an apartment building.", do you mean A bought the partnership interest? Or new partnership( LLC) was formed and apartment building was contributed to the LLC. This is a complex area of partnership and lots of tracking and allocation is required. Recommend talking to professional.

    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®4.9242 Reviews
    WebsiteView Page
    TaxMD® | Tax Planning Software
    WebsiteView Page
    0Reply
  • Faith K.
    OP
    Professional · Minneapolis, MN · Member since 2014 · 3 posts · 0 votes
    7y

    Answers to the questions posed: 

    First question: I'm not sure how the 'redemption' would be structured but would appreciate advice.  In this scenario, Investor B would be the managing partner and would ultimately want to have long-term ownership.  Investor A would want to meet a certain level of return but would want to have an exit strategy. 

    Second question: It would be a new partnership (LLC) that was formed for a new construction apartment building.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free