Discussion:Ptr depreciation
From TaxAlmanac, A Free Online Resource
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Ptr depreciation
| 11 October 2006 | |
| I don't do many 1065's. I have a client that sold a 30% share of his sole proprietorship to his son. To pay for his share, the son was required to build a new shop for the business. The shop is considered to belong to the partnership. The shop represents about 30% of the value of the assets of the business. Who deducts the depreciation for the shop? The son, who paid for it, or the partnership, where it will be split 30-70 like everything else on the return?
What about another sole proprietor who sold 50% of his business for a cash payment? The new partner wants to know if he gets a deduction for his half of the equipment he bought. Can you recommend a good resource to find answers to these types of situations? | |
| 11 October 2006 | |
| I can't recommend a good resource for these types of situations, but my gut tells me to start with the balance sheet of each entity. To whom the depreciation flows depends upon whose balance sheet the asset sits. For the situation with the son, the shop sits upon the P/S's balance sheet, therefore the depreciation would be claimed by that entity and appropriately flow through to the partners.
The new partner who paid cash for 50% interest is not able to deduct half the equipment he bought. He receives half the depreciation of the P/S as it flows through to him in the calculation of ordinary income, unless it is Sec. 179 expense. This may be a similar amount, but the distinction is important. Again, the equipment sits on the balance sheet of the P/S and the depreciation is claimed there. I hope this helps. | |
| 11 October 2006 | |
| I think that IRC 704(c) must be addressed. The are three choices in both examples above to allocate depreciation; the traditional method, the traditional method with curative allocations, and the remedial allocation method. The method of choice should be part of the buy/sell agreement as it can have substantial tax implications. | |
To join in on this discussion, you must first
log in.
