Assets | ||
Adjusted basis | Fair market value | |
Cash | $5,000 | $5,000 |
Accounts receivable | 10,000 | 10,000 |
Inventory | 20,000 | 21,000 |
Depreciable assets | 20,000 | 40,000 |
Total | 55,000 | 76,000 |
Liabilities and Capital | ||
Adjusted per books | Fair market value | |
Liabilities | $10,000 | $10,000 |
Capital: | ||
A | 15,000 | 22,000 |
B | 15,000 | 22,000 |
C | 15,000 | 22,000 |
Total | 55,000 | 76,000 |
Example.
Example.
Assets | ||
Adjusted basis | Fair market value | |
Asset 1 | $10,000 | $10,000 |
Asset 2 | 4,000 | 6,000 |
Asset 3 | 6,000 | 6,000 |
Asset 4 | 7,000 | 4,000 |
Asset 5 | 3,000 | 13,000 |
Total | 30,000 | 39,000 |
Capital | ||
Adjusted per books | Fair market value | |
Partner A | $10,000 | $13,000 |
Partner B | 10,000 | 13,000 |
Partner C | 10,000 | 13,000 |
Total | 30,000 | 39,000 |
Assets | |||
Adjusted basis | Fair market value | Basis adjustment | |
Asset 1 | $10,000 | $10,000 | $0.00 |
Asset 2 | 4,000 | 6,000 | 666.67 |
Asset 3 | 6,000 | 6,000 | 0.00 |
Asset 4 | 7,000 | 4,000 | (1,000.00) |
Asset 5 | 3,000 | 13,000 | 3,333.33 |
Total | 30,000 | 39,000 | 3,000.00 |
Capital | |||
Adjusted per books | Fair market value | Special basis | |
Partner T | $10,000 | $13,000 | $3,000 |
Partner B | 10,000 | 13,000 | 0 |
Partner C | 10,000 | 13,000 | 0 |
Total | 30,000 | 39,000 | 3,000 |
Example.
Capital accounts | ||||
A | B | |||
Book | Tax | Book | Tax | |
Initial Contribution | $500,000 | $100,000 | $500,000 | $500,000 |
Depreciation Year 1 | (30,000) | (30,000) | (20,000) | |
Remedial | 10,000 | (10,000) | ||
470,000 | 110,000 | 470,000 | 470,000 | |
Depreciation Year 2 | (30,000) | (30,000) | (20,000) | |
Remedial | 10,000 | (10,000) | ||
440,000 | 120,000 | 440,000 | 440,000 |
Example. A, B, and C each contributes $5,000 cash to form partnership PRS, which purchases a coal property for $15,000. A, B, and C have equal interests in capital and profits. C subsequently sells its partnership interest to T for $100,000 when the election under section 754 is in effect. T has a basis adjustment under section 743(b) for the coal property of $95,000 (the difference between T's basis, $100,000, and its share of the basis of partnership property, $5,000). Assume that the depletion allowance computed under the percentage method would be $21,000 for the taxable year so that each partner would be entitled to $7,000 as its share of the deduction for depletion. However, under the cost depletion method, at an assumed rate of 10 percent, the allowance with respect to T's one-third interest which has a basis to him of $100,000 ($5,000, plus its basis adjustment of $95,000) is $10,000, although the cost depletion allowance with respect to the one-third interest of A and B in the coal property, each of which has a basis of $5,000, is only $500. For partners A and B, the percentage depletion is greater than cost depletion and each will deduct $7,000 based on the percentage depletion method. However, as to T, the transferee partner, the cost depletion method results in a greater allowance and T will, therefore, deduct $10,000 based on cost depletion. See section 613(a).
Example.
26 C.F.R. §1.743-1