With respect to your second comment you are incorrect There are several ways

With respect to your second comment you are incorrect

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through, the adjusted basis in the partnership interest necessarily is zero. With respect to your second comment, you are incorrect. There are several ways that a partner’s adjusted basis in the partnership interest at the beginning of a taxable year can be zero without the section 704(d) loss limitation having applied in the preceding taxable year. One possibility is that the partner’s distributive share of losses and nondeductible expenditures for the previous taxable year exactly equaled the partner’s adjusted basis in the partnership. Another possibility is that a distribution of cash was made to the partner in an amount that equaled or exceeded the partner’s adjusted basis in the partnership interest. Closely related is the possibility that the partner’s share of partnership liabilities decreased by an amount that equaled or exceeded the partner’s adjusted basis in the partnership interest. Yet another closely related possibility is that the partnership assumes a liability of the partner in an amount equal to or exceeding the partner’s adjusted basis in the partnership interest. Still another possibility is that the partner joined the partnership by contributing property with an adjusted basis of zero (or with a positive adjusted basis wiped out by the effect of the partnership assuming or taking subject to a liability) and the partnership broke even between the time of the partner’s arrival and the end of the preceding taxable year. Yet another possibility is that the partner has a distributive share of gain and income for a taxable year that generates adjusted basis in the partnership interest which in turn is reduced by a section 704(d) loss carryforward from a preceding taxable year. One more possibility is that the partner’s adjusted basis in the partnership interest was reduced to zero by the partner’s distributive share of partnership expenditures not deductible and not properly chargeable to capital account. #3 Partner: "G owns a commercial bldg. he has rented out to third party tenants for years. G’s adjusted basis in the building is $200,000, and the fair market value of the building is $800,000. H wants to become a one-half owner of the building and G is willing to do that
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deal. H will purchase an undivided one-half interest in the building, paying cash of $400,000 to G." You: "Excuse me. No debt?" Partner: "Amazingly, no debt. Why?" You: "Well, the analysis is easier if there is no debt." Partner: "That’s good to hear. So G and H plan to contribute the building to a newly- formed LLC that will be taxed as a partnership." You: "And?" Partner: "Here are my questions. All of them assume that the partners proceed as planned. First, am I correct that each of the two partners has an adjusted basis in the partnership interest of $400,000? If so, why? If not, what are they and why? Second, am I correct that each of the two partners has a capital account of $400,000? If so, why? If not, what are they and why? Third, assuming that annual depreciation on the building will be $50,000 if we use a 10-year straight-line computation to make it easy to talk, will they be able to allocate depreciation on the building equally? If so, why? If not, how must they allocate it
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  • Spring '14
  • JamesE.Maule
  • basis, Types of business entity, partner

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