In: Accounting
A property contributed by A is subject to a recourse loan of $775,000 that is assumed by the partnership with a tax basis of $1,850,000 and is valued at $2,578,000. The three partners share profits and losses as follows; 45% to A, 45% to B and 10% to C. The balances of their tax basis capital accounts are: (A-$974,531), (B-$1,197,959) and (C-$398,600). Book Value Capital accounts are: (A-$1,793,700), (B-$1,793,700) and (C-$398,600). Create a schedule of the allocation of the recourse loan among each partner.
Allocation of recourse loan
Given,
Amount of recourse loan - $775,000
Partners share of profits and losses- 45% to A, 45% to B and 10% to C
Tax basis capital accounts : A-$974,531, B-$1,197,959 and C-$398,600
Book value of capital accounts : A-$1,793,700, B-$1,793,700 and C-$398,60
Schedule of the allocation of the recourse loan
Particulars | Partner A | Partner B | Partner C |
Tax basis capital account balance |
$974,531 | $1,197,959 | $398,600 |
Allocation of recourse loan of $775,000 Partner A $775,000X(974,531/2,571,090) Partner B $775,000X(1,197,959/2,571,090) Partner B $775,000X(398,600/2,571,090) |
$ 293,751 | $361,099 | $120,150 |
Liabilities and Partner Tax Basis
As per the provisions stated in U.S. Code § 704, a partner in a partnership may only utilize a loss allocated to that partner to the extent of the partner’s “basis” in the partnership interest. This is generally equal to the amount of cash plus the adjusted tax basis of any property contributed by the partner to the partnership.