Krypton partnership owns and operates an office

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5. Krypton Partnership owns and operates an office building in the medical district of a large city. The property was contributed to the partnership several years ago by partner K. Under the terms of the partnership agreement, K is allocated 20% of the partnership’s profits, gains, losses and deductions, other than depreciation. Depreciation is allocated 50% to K and 50% to the other partners. The office building is encumbered by a nonrecourse mortgage of $750,000. Its tax basis is $650,000 and its book value is $875,000. a. Under the general rules governing the allocation of partnership nonrecourse liabilities, how much of the nonrecourse liability will be allocated to K? 0
b. Would an allocation of $425,000 of the nonrecourse liability to K be acceptable under the regulations? Explain.
©2015 CCH Incorporated. All Rights Reserved.
Practical Guide to Partnerships and LLCs—Instructor’s Guide Solutions 7 ($325,000) to K in addition to the 1 st $100,000 (allocation to extent of Code Sec. 704(c) minimum gain). c. What about an allocation of $330,000? 0
d. Could the partnership allocate $475,000 of the liability to K this year and change the allocation to $330,000 next year (adjusted for changes in the tax basis and book value of the property)?
6. Triple J Partners has the following balance sheets for book and tax at year end: Tax Basis Book Value Cash & equivalents $50,000 $50,000 Property 1 1,200,000 1,500,000 Property 2 1,250,000 1,250,000 Other Assets 800,000 800,000 $3,300,000 $3,600,000 Nonrecourse Mortgage, Property 1 $1,500,000 $1,500,000 Recourse Mortgage, Property 2 1,200,000 1,200,000 Capital, James 0 300,000 Capital, Johnson 300,000 300,000 Capital, Jackson 300,000 300,000 $3,300,000 $3,600,000 Property 1 was contributed by partner James. The partnership agreement allocates profits equally, but losses are allocated 25% to James, 25% to Johnson, and 50% to Jackson. ©2015 CCH Incorporated. All Rights Reserved.
Practical Guide to Partnerships and LLCs—Instructor’s Guide Solutions 8

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