A limited partnership consisting of A, B, and C purchased a building for $100,00
ID: 2573729 • Letter: A
Question
A limited partnership consisting of A, B, and C purchased a building for $100,000 paying $30,000 cash and taking a non-recourse mortgage of $70,000. Depreciation of the building is $10,000 per year. Their interest in profits and losses are 20%, 40%, and 40%. The partnership agrees to allocate recourse deduction equally (33 1/3%) to each partner. Assume the allocations of non-recourse deductions will be respected. The partnership agreement complies with the alternative test for economic effect and contains a minimum gain chargeback provision. Each partner's capital account on 1/1 of year 1 is $10,000.
a) What is the partnership minimum gain for year 2?
b) What are the non-recourse deductions for year 2?
c) How are non-recourse deductions allocated for year 2?
d) What is the partnership minimum gain for year 4?
e) What are the non-recourse deductions for year 4?
f) How are non-recourse deductions allocated for year 4?
g) What is each partner's share of partnership minimum gain at the end of year 4?
Explanation / Answer
Particulars Depreciation A B C Remarks Capital Account on Formation 10,000 10,000 10,000 Initial Capital Contribution Less: Depreciation in 1 10,000 (3,333) (3,333) (3,333) Allocation (No Minimum Gain) Capital at the end of year 1 6,667 6,667 6,667 Balance Less: Depreciation in 2 10,000 (3,333) (3,333) (3,333) Allocation (No Minimum Gain) Capital at the end of year 2 3,333 3,333 3,333 Balance Less: Depreciation in 3 10,000 (3,333) (3,333) (3,333) Allocation (No Minimum Gain) Capital at the end of year 3 0 0 0 Balance Less: Depreciation in 4 10,000 (3,333) (3,333) (3,333) Allocation of Minimum Gain Capital at the end of year 4 3,333 3,333 3,333 Balance
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