W, X, Y and Z each contribute $200,000 for a 25% interest in the W, X, Y and Z partnership. The partners all meet the 3 tests for economic effect and the tests for allocation of non-recourse debt. The partnership uses the $800,000 cash plus a non- recourse loan to buy a building for $4,000,000. The building is depreciable over 20 years on a straight-line basis. Income for all years equals expenses except for tax depreciation which is allocated all to W.

1. How much depreciation will W be allowed to take in year 1? 
2. How much depreciation will W be allowed to take in year 2?
3. What effect, if any, would a negative capital account have on W's ability to take depreciation deductions? 
4. What is W's tax basis in his partnership interest after year 1? After year 2?

Answer rating: 100% (QA)

To calculate the depreciation that W will be allowed to take in year 1 and year 2 we first need to determine the partnerships total depreciable basis ... View the full answer