1. CAPITAL ACCOUNTS 704(b) & MINIMUM GAIN Presented by Brad Elphick, CPA, Novogradac & Company LLP

2. CAPITAL ACCOUNTS Increases to partner’s capital accounts
Cash contributed
Fair market value of property contributed
Net of liabilities assumed by partnership
Allocations of income or gain
Decreases to partner’s capital accounts
Cash distributed
Fair market value of property distributed
Allocations of loss or deduction, most credits

3. Partnership Agreement
TAX CREDITS
Partnership Agreement $ $ $
Developer
Investor
Limited Partnership
Capital Account
CREDITS
LOSSES

4. Developer
Investor
Limited Partnership
Capital Account
CREDITS
LOSSES

5. 704(b)!!! $ CREDITS LOSSES Does not receive credits or losses
704(b) Issues $
Developer
Investor
Limited Partnership
Does not receive credits or losses
Cannot use credits or losses
Must pay an adjuster to the Investor
Capital Account
CREDITS
LOSSES
704(b)!!!

6. Minimum Gain What is it? How does it help a 704(b) problem?
Assumed sale of asset at year end
Assumed sale price of non-recourse debt plus $1
Gain is calculated
Assumed Sale price less Net Book Value
How does it help a 704(b) problem?
Assumed Minimum Gain is allocated to partners
Losses can continue to flow to partners with negative capital accounts
Credits flow to the investor partner

7. Example of 704(b) problem 20X1 20X2 20X3 20X4 20X5 BALANCE SHEET LAND
20X1
20X2
20X3
20X4
20X5
BALANCE SHEET
LAND
1,000,000
BUILDING
10,000,000
ACCUM DEP
(1,000,000)
(1,500,000)
(2,000,000)
(2,500,000)
(3,000,000)
TOTAL
9,500,000
9,000,000
8,500,000
8,000,000
PERM LOAN
DEFERRED DEV FEE
500,000
LP CAPITAL
2,500,000
RETAINED EARNINGS
INCOME STATEMENT
REVENUE
OPERATING EXP
(500,000)
DEPRECIATION
NET LOSS

8. Calculation of Minimum Gain
20X1
20X2
20X3
20X4
20X5
LAND
1,000,000
BUILDING
10,000,000
ACCUM DEP
1,000,000)
(1,500,000)
(2,000,000)
(2,500,000)
(3,000,000)
TOTAL
9,500,000
9,000,000
8,500,000
8,000,000
QNR DEBT
(8,000,000)
MINIMUM GAIN
(1,000,000)
(500,000) -
LP CAPITAL
BEGINNING BAL
2,000,000
1,500,000
500,000
NET LOSS
ENDING BAL

9. LIMITED PARTNER IRC 704(b) REALLOCATION

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