Discussion:Joint property contributed to a partnership

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Discussion Forum Index --> Advanced Tax Questions --> Joint property contributed to a partnership


Discussion Forum Index --> Tax Questions --> Joint property contributed to a partnership

BigDaddy (talk|edits) said:

4 September 2009
Been lurking on this site for years, finally ran across something I am having trouble nailing down the answer to.

Husband and wife purchased raw real estate, deed was recorded in both their names as joint ownership (not in a community property state). Three months later they contributed this property to a partnership, however the partners are the husband (96%) and their son (4%), the wife does not directly own a partnership interest. I already know I have a slight gift issue with the son obtaining his partnership interest (he contributed value less than his 4%).

The question; what happens to the wife's 50% undivided interest in the property? Is she considered to be a partner with the husband even though the operating agreement does not show her as a partner? Something in my head is telling me I have another gift tax issue between the wife and son.

Thanks for the forthcoming help.

Derwood (talk|edits) said:

5 September 2009
Big, who is presently the legal owner of the property? Husband & wife or partnership? In other words, did they transfer legal title to the partnership? ... or did they simply say in the operating agreement that they "contribute" the property to the partnership, but never actually recorded a deed in favor of the partnership?

BigDaddy (talk|edits) said:

5 September 2009
Yes, deed was transferred and recorded.

Derwood (talk|edits) said:

5 September 2009
Then, I would say that wife gave a tax free gift to her spouse.

BigDaddy (talk|edits) said:

6 September 2009
Thanks Der, we finally had that revelation but were 2nd guessing ourselves due to some other issues involved. Don't you just it when clients come to you after-the-fact!

CrowJD (talk|edits) said:

6 September 2009
It seems to me that the wife would make the entire gift to H only if she first transferred her interest to H, and H transfered the land to the partnership. That is not the facts you gave. You said W and H deeded their interests directly to the partnership.

BigDaddy (talk|edits) said:

7 September 2009
Crow, That is what tripped us up initially but I can only come up with two possible routes that the IRS would take; 1) they are going to consider it a deemed, non-taxable gift to the husband at the contribution or 2)they are going to consider the wife to own 1/2 of the husbands interest in the partnership...making the partnership agreement incorrect.

While I agree the facts support option 2, it's obvious what the intent was....for father and son to end up owning the land...I am just trying to figure out what the IRS could come after.

Kevinh5 (talk|edits) said:

7 September 2009
why don't they put a paper trail down now, Hansel & Gretel style?

BigDaddy (talk|edits) said:

10 September 2009
Too much paper can be bad for your health....was just brought to our attention that the husband transfered some of his ownership in the partnership to the son on the last day of the year. No problems there, we need to file a 709 for the husband showing the gift of partnership interest but attorney is saying that husband and wife can elect to split gift, I've done this before with cash and vacation homes but never with partnership interest. I'm starting to get heartburn over this one, anyone care to point me in the right driection to do some research on gift splitting with partnership interests?

BigDaddy (talk|edits) said:

10 September 2009
Edit: I should say I have done gifting of family partnership interests before but it in every case the husband and wife were both on the parternship agreement owning a %. Attorney is saying the fact that the husband is the only owner does not matter due to the husband and wife being able to elect gift-splitting. I am getting hung up on the thought that how can the wife gift something she does not own?

Kevinh5 (talk|edits) said:

10 September 2009
what I meant was to have the wife prepare a document gifting her portion of the property to the husband (intended to be back then)

BigDaddy (talk|edits) said:

10 September 2009
Right, got ya. And that was the direction we were heading until we found out about the subsequent gift but now the attorney is taking the stand that it doesn't matter since they can split the gift on the 709, which I am not real sure I am comfortable with (husband only owner of partnership %) until I get some more research done on it.

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