Converting a sole proprietorship into a partnership

[Hezzidoggo]

Hi there,

We are converting my husbands long standing sole proprietorship into a partnership. For the outstanding CCAs associated with it (two trailers), how do I file them this year and move them to the partnership? Thank you

[TurboTaxSusan]

You would enter the trailers as a disposition at their Fair Market Value (FMV) for the sole proprietorship, and then they would become acquisitions at FMV for the partnership.

[Hezzidoggo]

Thank you. So would the FMV be counted as income in the sole proprietorship and CCA expense in the partnership? Is the a way to claim the outstanding FMV expense for the sole proprietorship? I’m just concerned how it will affect our taxes to have all this “income” from the sales. This is the last year the sole proprietorship will be operating. 

[TurboTaxSusan]

For the sole proprietorship, yes, it’s possible that the disposal of the trailers will lead to a recapture (a negative UCC balance). If that happens, the negative UCC balance will be added to the income of the sole proprietorship.

For the partnership, there is no income. The trailers would be added as an acquisition and then you would take CCA on them.