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.

The partnership is also thinking of distributing a second building to Joe that it purchased for $120,000 at the same time Joe originally contributed the first building. The second building was also depreciated using the straight-line method over 39 years and is now worth $115,000.

How much depreciation is allocated to each partner per year for tax purposes with respect to the first building?

Answer 1

	Bob		Joe		Sam		Cassie
	Tax basis	Capital account	Tax basis	Capital account	Tax basis	Capital account	Tax basis	Capital account
	$100,000	$100,000	$75,000	$100,000	$100,000	$100,000	$100,000	$100,000
Depreciation year 1	($641)	($641)		($641)	($641)	($641)	($641)	($641)
year 2	($641)	($641)		($641)	($641)	($641)	($641)	($641)
year 3	($641)	($641)		($641)	($641)	($641)	($641)	($641)
year 4	($641)	($641)		($641)	($641)	($641)	($641)	($641)
year 5	($641)	($641)		($641)	($641)	($641)	($641)	($641)
	$96,795	$96,795	$75,000	$96,795	$96,795	$96,795	$96,795	$96,795
Depreciation amounting to $3205 will be allocated to Bob, Sam and Cassie for first building as per Sec 704(c ).
Total depreciation = $1923 x 5 = $9615