Question

Partnership accounting exercise.

Compute basis for each partner and income/loss allocable to each partner at the end of every year or when they exit the partnership.
Art is an experienced and established real estate operator. He has managed buildings successfully for others for over ten years and would like to start managing his own buildings. Buck has a lot of money and would like to invest in real estate if he can find a competent property manager. Chat has a lot of friends in real estate and knows when a building is going to be on the market before anyone else. He is an attorney and too busy to manage real estate.
Art, Buck and Chat agree to form ABC Realty partnership. Art will manage the properties and receive $60,000 per year as manager. Profits will be split with Art getting 15%, Buck 50% and Chat 35%. Art is investing $25,000, Buck $125,000 in cash and all the office furniture and equipment necessary to operate a real estate management office. The equipment Buck is contributing has a basis of $25,000 and a fair value of $100,000. Chat is investing $10,000 and will do all the legal work to draft partnership agreements, act as attorney on purchase of buildings a d file all necessary papers for the partnership. Had he done the same work for a client he would have charged $40,000.
All papers are signed ABC Realty is launched January 2, 2015. On March 1, 2015 ABC buys its first building, cost 1 million putting down 100,000 and getting a 900,000 mortgage form Chase Bank.
On July 1 they purchased their second building, a qualified low income residence, cost $800,000 putting down $50,000 and getting a $750,000 non-recourse mortgage for Citibank.

On December 31, 2015, ABC's accountant reviewed their books and issued an income statement showing
Rental income of 150,000 and expenses (including MACRS) of $50,000.
What is Art, Buck and Chat's income for 2015? What are their capital balances as of December 31, 2015? Except for Art's agreed payment, no other money was distributed to partners.

On July 1, 2016 Chat sold his interest in ABC to Doug for 450,000. What gain or loss did Chat recognize on this transaction? ABC agreed to allow Doug to take over Chat's share of ABC.
In 2016 ABC's rent receipts were 125,000 and expenses were 65,000. As a real estate operation, rent and expenses are basically the same every month. How will 2016 income be allocated between Art, Buck, Chat and Doug?

On January 15, 2017 ABC sold the equipment and machines that Buck brought into the partnership for 125,000. MACRS allowed while the equipment was in ABC was 15,000.
How will this transaction impact the basis of the partners?

Because of litigation with some tenants, ABC just broke even for 2017.
On January 2, 2018 ABC agreed to buy Doug's interest for $500,000 and only Art and Buck would remain partners in the same ratio they were before ( Art will own 23% and Buck 77%). The properties owned by ABC had increased in value by 50,000 each. ABC agreed to use the revaluation method for this transaction

Answer 1

Partnership ratio_

Art-15%

Buck- 50%

Chat-35%

Art will get $60000 per year as Management cost.

Chat will not get anything for the legal work except for Art's agreed payment, no other money was distributed to partners.

Please find the attached Images for the solution.