Reference no: EM133054287

Question - Individuals A, B and C form a limited partnership with cash contributions of $10,000, $10,000 and $30,000, respectively. A and B are the general partners and C is the sole limited partner. The partnership agreement provides for the maintenance of proper capital accounts, which will govern liquidating distributions. Each general partner has an unconditional obligation to restore any deficit balance in her capital account upon liquidation, but the limited partner has no obligation beyond her initial capital contribution. The partnership borrows $400,000 on a recourse basis and acquires an apartment building for $400,000, keeping its $50,000 of equity capital as a cash reserve. For the next three years, the partnership operates the apartment building at an annual loss of $15,000, not including depreciation which is an additional $10,000 per year (ignoring depreciation conventions). The partnership agreement provides that all items of income, gain, loss, deduction and credit will be allocated 20% to each of the general partners and 60% to the limited partner, except for depreciation, which will be allocated entirely to the limited partner. The partnership agreement contains a qualified income offset and provides that any allocation that is not allowable under applicable law will be reallocated as required. At the end of three years, what are the cumulative amounts of operating loss and depreciation properly allocated to the three partners?