- Chris and Lauren each contributed $90,000 cash to the cash basis CL Partnership. The partnership uses all $180,000 of the cash to purchase a depreciable asset. The partnership agreement provides that depreciation is allocated 60% to ChrisÂ and 40% to Lauren. All other items of partnership income, gain, loss or deduction are allocated equally between the two partners. During the first year of operations, the partnership produces $30,000 of income before depreciation and deducts $30,000 of depreciation. At the end of the first year, the partnership sells the depreciable asset for its $150,000 book value. Following these transactions, the partnership has $180,000 of cash ($150,000 from sale of the asset and $30,000 from operations). assume nothing else happens in the first year that affects the partners and liquidates at the end of the first year.
- a) How much cash is distributed to each partner in the liquidating distribution under the economic effect test?
- b) if the partnership distributes $30,000 cash to Lauren on June 30 of the current year, how much cash is distributed to each partner in the liquidating distribution under the economic effect test?
- At the end of last year, Ben, a 40% partner in the four-person BBJR Partnership, has an outside basis of $50,000 in the partnership, including a $40,000 share of partnership debt. Ben’s share of the partnership’s Â§ 1245 recapture potential is $25,000. All parties use the calendar year. Describe the income tax consequences to Ben in each of the following independent situations that take place in the current year:
- a) On the first day of the tax year, Ben sells his partnership interest to Marilyn for $80,000 cash and the assumption by Marilyn of the appropriate share of partnership liabilities.
- b) Ben dies after a lengthy illness on April 1of the current year. Ben’s brother immediately takes Ben’s place in the partnership.