Partner A is the general partner, and Partner B is a limited partner. Partner A had made
Question:
Partner A is the general partner, and Partner B is a limited partner. Partner A had made a contribution of $40,000 Partner B contributed $160,000 The LLC purchased a tract of land to farm for $1,000,000, paying $200,000 cash and borrowing $800,000 nonrecourse. The loan bears interest only for the first five years, with a balloon payment at the end of the term
LLC allocated its income and deduction items 20% to Partner A and 80% to Partner B, until the partnership makes enough money to have broken even over the course of its life. After breaking even all income and loss items will be allocated 50-50.
the partnership agreement requires all income and loss allocations to be reflected in the capital accounts and that liquidation distributions be tied to capital account balances. he partnership has a qualified income offset for Marcelle and also a minimum gain chargeback provision.
The partnership agreement states that all non-liquidating distributions will be 20% to partner A and 80% to Partner B, until $200,000 total has been distributed. Thereafter, all distributions will be made 50-50. Assume that the farm is a depreciable asset, and will be depreciated over 10 years straight line. Assume that the business breaks even each year for the next three years excluding depreciation expense, the loss each year is equal to the of depreciation expense
- How will the depreciation on the property in each of the first three years of business be allocated?
- At the end of three years, what will be each partner's capital account balance?
- Would your answer change if the partnership agreement provided that Partner B would be allocated 99% and Parten A 1% of depreciation? Explain and give authority for your response.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill