Angel is looking to expand her current business, Sports Nation. She currently has been providing training at her basketball court, but wants to seize a rare opportunity to purchase adjacent land so that she can develop an entire facility for additional training scenarios. She convinces two other investors, Brad and Charlie, that the expansion is a good idea. They decide to form a partnership, in which Angel and Brad will be general partners and Charlie will be a limited partner. Angel contributes her current property, which has a current basis and fair market value for the land of $40,000 and a basis of $90,000 and $220,000 for the building. The building on the property has a remaining tax useful life of 8 years, but had the building been built at the current time, would have had a useful life of 20 years. Brad contributed cash worth $150,000 and stock worth $90,000, which had a basis of $70,000. Charlie contributed $220,000 in cash. The business used $250,000 of the cash to purchase the adjacent property. There were no buildings on this property. Another $50,000 worth of 7-year property was purchased at this time as well (assume straight line depreciation for 7 years). For all years in question, assume that prior to considering depreciation expenses, profits exceed all non-depreciation related expenses by $22,000.
Assume the partner's agreed to use the curative allocation method with respect to Section 704(c ). Show the depreciation allocation to each of the partners for both tax and book purposes for the first ten years of operations.
In year 5, the partner's decide that the original property has a greater market value than the new property purchased. In order to generate cash to expand operations, the partners agree to sell the land and building that Angel originally contributed. The property was sold for $375,000, with the land at the time of the sale having an estimated value of $60,000. At the same time, the partnership decided to sell the stock which Brad originally contributed. The stock was sold for $150,000. What are the tax and book consequences of the sale of the property for each of the partners?