As a result of a significant slowdown in economic activity, your client the "Bronx Bombers, LLC" needs additional capital to maintain the property and make payments on the mortgage. The LLC has four partners. Ruth, DiMaggio, Jackson and Berra, are all equal partners. Currently the debt is non-recourse. The Bronx Bombers want to admit Jeter to the LLC. They want him to invest $3,000,000 for a 20% interest on January 1, 2023.
Additional information is:
Admittance of Jeter to the partnership for a 20% interest for $3,000,000.
A revaluation of the partnership under 704(b).
Guarantee of the debt by Jeter.
The partnership agreement calls for a 10% preferred return on capital contributions. Currently, no original capital has been distributed back to the partners.
The depreciable life of the building is 39.5 years. The building has been depreciated for 10 years through 12/31/2021.
The loan had previously be refinanced and the excess proceeds distributed.
 
You client wants to know the following:
What is the best 704(c) allocation method and why? How much tax depreciation you client get?
Upon admittance, how will the debt be allocated and how much debt will be allocated to each member?
Will there be any gain on the transaction as a result of the changes in the debt allocation? Why?
How does the revaluation of capital accounts impact the liquidation of the partnership?
What are the capital accounts and debt amounts allocated to the members at the end of year 1 using the 704(c) method identified above?

 

Transcribed Image Text:

Bronx Bombers, LLC Balance Sheet and Income Statement 12/31/2022 Assets Cash Building Acc. Depreciation Land Other Assets Liabiities Bank Loan Equity Ruth Contributions Ruth Distributions Ruth Income Allocation DiMaggio Contributions DiMaggio Distributions DiMaggio Income Allocation Jackson Contributions Jackson Distributions Jackson Income Allocation Berra Contributions Berra Distributions Berra Income Allocation 250,000 5,000,000 (1,265,823) 1,000,000 50,000 (5,200,000) (450,000) 500,000 (8,544) (450,000) 500,000 (8,544) (450,000) 500,000 (8,544) (450,000) 500,000 (8,545) Bronx Bombers, LLC Balance Sheet and Income Statement 12/31/2022 Assets Cash Building Acc. Depreciation Land Other Assets Liabiities Bank Loan Equity Ruth Contributions Ruth Distributions Ruth Income Allocation DiMaggio Contributions DiMaggio Distributions DiMaggio Income Allocation Jackson Contributions Jackson Distributions Jackson Income Allocation Berra Contributions Berra Distributions Berra Income Allocation 250,000 5,000,000 (1,265,823) 1,000,000 50,000 (5,200,000) (450,000) 500,000 (8,544) (450,000) 500,000 (8,544) (450,000) 500,000 (8,544) (450,000) 500,000 (8,545)

Answer rating: 100% (QA)

Determine the tax depreciation we need to calculate the new adjusted tax basis of the partnerships assets after Jeters admission Calculate the adjuste... View the full answer