Question

Bob, Joe, Sam, and Cassie operate an equal partnership.

Joe contributed a building (basis of $75,000 and FMV $100,000) at the time of contribution and has held it as a capital asset prior to the contribution. The building was depreciated by the partnership for tax purposes using the straight-line method at a rate of $1,923 per year with a life of 39 years. After five years worth of depreciation had been allowed with respect to the building and at a time when it was valued at $115,000, it was distributed to Sam as a non-liquidating distribution.

What impact does the distribution of the building have on Joe in terms of his basis in the partnership and his capital account?

Answer 1

As joe contributed building as capital for 75000$, therefore opening balance of his capital account will be 75000$.

For 5 yrs building was used by patnership and depreciation written off will be $1923*5 = $9615 and value of building after depreciation will be $ 65385 at the end of 5 years.

After five years building distributed to sam for $115000.

That means value of building increased from$65385 to $115000.that means gain of $115000-$65385=$49615, which should be distributed equall among the partners. Joe capital accpunt will be increased by $49615/4=$12403.75.