Help needed for first-time 1065 filing - how to report real estate transfer to LLC partnership?

I'm filing a 1065 for the very first time (it's a Partnership LLC that holds rental property) and I'm completely confused about setting up the K1's correctly. We created this LLC last year and transferred the deed of our rental property from us (the partners) to the LLC. What's throwing me off is how to figure out the capital contribution when it comes to the house. Should I be using the assessed property value, the remaining mortgage balance, our initial down payment, or just the equity we have in the property? Basically, I need to know what dollar amount I should report as contributed to the partnership. The property is worth around $385k now, we put down $75k originally, and we still owe about $210k on the mortgage. The LLC took over the mortgage payments when we transferred the deed. This is my first time dealing with a 1065 partnership return and I want to make sure we're doing the capital accounts correctly from the start. Any advice would be super appreciated!

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19 comments

Hunter Brighton

•8M

Great question about your first 1065 filing! For the capital contribution when transferring real estate to a partnership, you'll report the property's fair market value (FMV) as your contribution, but you'll need to reduce this by any liabilities the partnership assumes. So in your case, start with the current FMV of $385k, then subtract the mortgage balance of $210k that the LLC took over. This means your initial capital contribution would be approximately $175k (equity value). This represents the net value you're actually contributing to the partnership. Make sure that on Schedule K-1, you're reporting the net contribution (FMV minus debt) in the capital account analysis section. Also, don't forget to check if this was a tax-free exchange under Section 721, which is typically the case when contributing property to a partnership in exchange for a partnership interest.

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Hunter Brighton

•8M

Yes, you're essentially contributing your equity in the property (FMV minus debt), which represents the actual economic value you're bringing to the partnership. For determining FMV, the IRS doesn't specifically require a formal appraisal for a 1065 filing, but you should have a reasonable basis for your valuation. Recent comparable sales in your area can work if they're truly comparable, or you could use a recent tax assessment adjusted for market conditions. If the value is significant or potentially questionable, getting a professional appraisal is always the safest approach to support your position if you're ever audited.

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Lauren Wood

•8M

After struggling with a similar situation with my rental property LLC, I found taxr.ai (https://taxr.ai) to be incredibly helpful. They reviewed my deed transfer documents and mortgage paperwork and provided a clear analysis of exactly how to handle the capital contributions. Their system allows you to upload your property documents and partnership papers, then gives you specific guidance on how to complete the capital account sections of Form 1065 and Schedule K-1. It saves so much time compared to trying to interpret IRS guidance or getting conflicting advice from various sources.

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Lauren Wood

•8M

You can just upload the settlement statement and mortgage documents - you don't need to provide the actual deed if you're concerned about privacy. They use secure encryption for all document uploads and analysis. The entire process took less than 24 hours for me. I uploaded my documents in the evening and had detailed guidance the next morning. Their system is designed for time-sensitive tax situations, which was perfect since I was also working against a filing deadline.

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Chad Winthrope

•8M

Just wanted to update everyone - I tried taxr.ai after seeing the recommendation here and it was exactly what I needed! I uploaded my settlement statement and mortgage documents and received a detailed explanation of how to calculate my capital contribution. The analysis showed that I needed to use the equity value (FMV minus mortgage) but also explained how to account for acquisition costs that increased my basis. They even provided sample entries for the capital account section of the K-1. Definitely worth checking out if you're dealing with this kind of partnership property transfer issue!

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Paige Cantoni

•8M

If you're still having trouble figuring this out and need to talk to someone at the IRS directly, I'd recommend Claimyr (https://claimyr.com). I was stuck on a similar partnership contribution issue and spent days trying to get through to the IRS with no luck. Claimyr got me connected to an actual IRS representative in about 15 minutes who walked me through the proper way to report property transfers to partnerships. You can see how it works in their demo video here: https://youtu.be/_kiP6q8DX5c. Saved me hours of waiting on hold and the anxiety of wondering if I was doing it right.

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Paige Cantoni

•8M

It doesn't actually jump the queue - it uses an automated system that continuously redials the IRS for you until it gets through. Basically, their system waits on hold so you don't have to. When they finally connect with an IRS agent, you get a call back to join the conversation. You're right to be skeptical - I was too. But it genuinely works because they're essentially doing the waiting for you using their automated system. It's not magic, just smart technology that saves you from having to manually redial or sit on hold for hours. It took about 15 minutes in my case, but they say it can take longer during peak times.

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Nina Fitzgerald

•8M

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway since I was desperate for answers about my partnership's property transfer. It actually worked! Got connected to an IRS representative in about 25 minutes who answered all my questions about reporting the property transfer on Form 1065. The agent confirmed that we should use the fair market value minus liabilities as our capital contribution and explained exactly which boxes to fill out on the Schedule K-1. They also warned me about a common mistake people make when reporting property transfers to partnerships. Didn't have to wait on hold for even a minute - the service called me when they had an agent on the line. Definite game-changer for getting tax questions answered.

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Jason Brewer

•8M

The Section 721 exchange is typically reported on your tax return, but there's not a specific form called "721 exchange disclosure form" that's required by the IRS. I should have been more precise. What's important is that you properly document the transfer on your 1065 return by including a statement that the property was transferred to the partnership under Section 721. You should also maintain records showing the property's basis, fair market value, and any liabilities assumed at the time of transfer. This documentation supports the tax-free nature of the exchange if you're ever audited. If your attorney didn't provide specific tax guidance, it might be worth consulting with a tax professional who specializes in partnerships.

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Connor Murphy

•3M

I went through this exact same situation last year when I transferred my rental property to my LLC! Here's what I learned after consulting with my CPA: You'll want to use the fair market value of the property ($385k) as your contribution, but then reduce it by the mortgage liability ($210k) that the partnership assumed. So your net capital contribution would be $175k (your equity). A few important tips from my experience: 1. Make sure you document the FMV with comparable sales or a professional appraisal - I used recent comps from my area 2. Don't forget to allocate the mortgage liability among partners on their K-1s (this affects their basis) 3. Keep detailed records of your original basis in the property (purchase price + improvements) for future reference The good news is that under Section 721, this transfer should be tax-free as long as you're receiving partnership interests in exchange for the property. Just make sure to attach a statement to your return explaining the property contribution. One last thing - if you're feeling overwhelmed with the 1065, consider having a tax pro review it before filing. Partnership returns can get complex quickly, especially with property involved!

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