Bob, Joe, Sam, and Cassie operate an equal partnership. Joe contributed a building (basis of $75,000...

Bob, Joe, Sam, and Cassie operate an equal partnership.

Joe contributed a building (basis of $75,000 and FMV $100,000) at the time of contribution and has held it as a capital asset prior to the contribution. The building was depreciated by the partnership for tax purposes using the straight-line method at a rate of $1,923 per year with a life of 39 years. After five years worth of depreciation had been allowed with respect to the building and at a time when it was valued at $115,000, it was distributed to Sam as a non-liquidating distribution.

How much depreciation is allocated to each partner per year for purposes of maintaining their capital account balances?

Solutions

Expert Solution

	Calculation of Depreciation to be allocated to each partner per year for purpose of maintaining their capital account balances

	Bob		Joe		Sam		Cassie
	Tax Basis	Capital Account	Tax Basis	Capital Account	Tax Basis	Capital Account	Tax Basis	Capital Account
	$100,000	$100,000	$75,000	$100,000	$100,000	$100,000	$100,000	$100,000
Depreciation
Year 1	($641)	($641)		($641)	($641)	($641)	($641)	($641)
Year 2	($641)	($641)		($641)	($641)	($641)	($641)	($641)
Year 3	($641)	($641)		($641)	($641)	($641)	($641)	($641)
Year 4	($641)	($641)		($641)	($641)	($641)	($641)	($641)
Year 5	($641)	($641)		($641)	($641)	($641)	($641)	($641)
	$96,795	$96,795	$75,000	$96,795	$96,795	$96,795	$96,795	$96,795


WN	Total Depreciation

	$1923*5	$9,615

	So the total depreciation which have to be allocated to each Bob,Sam and Cassie for the first building
	($9615/3) as per section 704 C of the partnership act ie $3205
	which states the following
	Special rule for distribution where gain or loss would not be recognised outside partnership which states that
	Property Contributed by a partner who is therefore a contributing partner is distributed by partnership to another party.

ekkarill92 answered 1 year ago

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