Question
Rental income vs LT capital gain
I have a client who received a cabin and some land from their parents way back in 2003. They own it with their siblings and have a multi-member LLC. It was never made available to rent to anyone outside the family and now they sold it in 2025.
I am preparing a 1065 return due to the multi-member LLC - Do I put the "in service date" for the cabin as the date sold, since it wasn't really put in service until then? Or do I put it in service in 2003? No return has ever been filed since there hasn't been any activity to report. This is the initial and final return.
If I put the in service date as of 2025 when it sold, it is coming through as rental income, taxed at their ordinary rate. Is there any way to make this a LT capital gain?
