Reference no: EM13484333
Frank, Greta and Helen each have a one-third interest in the FGH Partnership. On December 31, 2012, the partnership reported the following balance sheet:
Partnership's Basis FMV
Assets:
Cash $120,000 $120,000
Asset 1 262,380 360,000
Asset2 115,200 90,000
Total 497,580 570,000
Partner's Capital:
Frank 165,860 190,000
Greta 165,860 190,000
Helen 165,860 190,000
Total 497,580 570,000
The partnership place Asset 1 (seven-year property) in service in 2010 and Asset 2 (five year property) in service in 2011. The partnership did not elect Sec. 179 expensing and elected out of bonus depreciation in both years. Accordingly, it computed the assets' adjuted basis at December 31, 2012 as follows:
Asset 1 Asset 2
Cost 600,000 240,000
Depreciation:
2010 85,740
2011 146,940 48,000
2012 104,940 (337,620) 76,800 (124,800)
Adjusted Basis 262,380 115,200
On January 2, 2013, Helen sold her partnership interst to Hank for $190,000. At the time of sale, the partnership has a Sec. 754 optional basis election in effect but has not elected to use the remedial method for allocation partnership items.
Required: Tje partners have asked you to determine (1) the amount and character of helen's gain or loss; (2) Hanks optional basis adjustment and its allocation to Asset 1 and Asset 2; and (3) the amount of depreciation allocated to Hank in 2013, including the effects of the optional basis adjustment. At a minimum, you should consult the following resources: IRC Secs. 743 and 751; Reg. Sec 1,743-1(j) and Reg. Sec. 1,755-1.