XY Partnership has the following assets and liabilities at year-end. The book basis and tax basis...

XY Partnership has the following assets and liabilities at year-end. The book basis and tax basis are the same amount. Assets Basis Value Machine $ 10,000 $ 5,000 Building $80,000 $ 82,000 Note 1 $ 3,000 $ 3,000 Note 2 $90,000 $ 90,000 Note 1 is a nonrecourse note attached to the machine; Note 2 is a nonrecourse note attached to the building. What is the amount of the partnership's minimum gain? A. $0 B. $3,000 C. $6,000 D. $10,000

Expert Solution

A Minimum Gain Chargeback provision is required as a matter of law to be included in partnership agreements in order for non-recourse deductions to be allocated to the partners in any manner other than strictly according to the partners’ overall percentage capital interests in the partnership.

A partnership’s minimum gain is generally equal to the excess of partnership’s non-recourse liabilities over the adjusted tax basis of the property securing the debt.

In the given case machine’s Adjusted basis (5,000) is more than the non-recourse liability (3,000) attached to it. So, there is no minimum in case of machine and there is a loss of 2,000.

In case of building the non-recourse liability (90,000) attached to it is more than the Adjusted basis (82,000) so there is a minimum gain of 8,000.

Finally, the partnership’s minimum gain = 8,000 – 2,000(loss in case of machinery) = 6,000.

Option C is the right answer.

ekkarill92 answered 1 year ago

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