A limited partnership consisting of A, B, and C purchased a building for $100,00

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 non-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.

On 12/31 of year 6, the partnership pays $15,000 cash on the note. The $15,000 comes from a contribution of capital to the partnership made equally by the partners ($5,000 each).

a) what is the effect on the partnership minimum gain?

b) what is the effect on each partner's share of minimum gain?

c) is the minimum gain chargeback triggered for any of the partner's?

On 1/1 year 7, the partnership walks away from the land and building, relinquishing all rights to the lender.

d) what are the effects to each partner?

e) what is the balance of each partner's capital account immediately prior to relinquishing the property?

Explanation / Answer

a)

Partnership minimum gain = $70,000-$40,000 = $30,000

No Recourse Liability = $70,000

Asset value after 6 year = 100,000-10,000*6= 40,000

b)

Effect on each partner's share of minimum gain

A = 30000*20% = 6000

B = 30000*40% = 12000

C = 30000*40% = 12000

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