Question

Seven years ago, Paul purchased residential rental real estate that he has been depreciating as MACRS property over 27.5 years. This year, when his adjusted basis in the property was $250,000, Paul transferred the property to the newly formed PLA partnership in exchange for a one-third interest in the partnership. PLA incurred $10,000 of transfer taxes and fees related to the property. How will PLA treat the property?

a. PLA will take the rental real estate at a basis of $250,000 and the $10,000 taxes and fees at $10,000 and depreciate each over 27.5 years
b. PLA will take the rental real estate at a basis of $260,000 and depreciate it over 27.5 years.
c. PLA will take the rental real estate at a basis of $250,000 and the $10,000 of taxes and fees will be treated as a new depreciable property
d. PLA will take the rental real estate at a basis of $260,000 and depreciate it over the remaining 20 years.

Answer 1

c. PLA will take the rental real estate at a basis of $250,000 and the $10,000 of taxes and fees will be treated as a new depreciable property

Step-by-step explanation:

According to the rule, the adjusted basis of Paul is of $250,000 and it should be depreciated for the predicted remaining life i.e. 20 years

While on the other hand, the $10,000of transfer taxes and fees would be treated as a new purchase of an asset and would be depreciated for 27.5 years

Therefore as per the given situation, the option c is correct