Caitlin and Wally formed the C & W Partnership on September 20, 2017. Caitlin contributed cash of $195,000, and Wally contributed office furniture with a FMV of $66,000. He bought the furniture for $60,000 on January 5, 2017, and placed it in service on that date.

Wally did not elect Sec. 179 expensing on the furniture, nor did he take bonus depreciation. He also contributed an office building and land with a combined FMV of $129,000. The land’s FMV is $9,000. Wally bought the land in 2010 for $8,000 and had the building constructed for $100,000. The building was placed in service in June 2013.

Required:

Your tax manager has asked you to prepare a schedule for the file indicating the basis of property at the time of contribution that Wally contributed, the depreciation for each piece of property that the partnership can claim, and the allocation of the depreciation to the two partners. Also indicate the amount and type of any recapture to which the contributed property may be subject at the time of the contribution and at a later time when the partnership sells the property. Your tax manager knows that, under Reg.

Sec. 1.704-3, several alternatives exist for allocating depreciation relating to contributed property. He remembers that the Treasury Regulations describe a traditional method and a couple of others, but he’s not sure what method applies in this situation. He wants you to check the alternatives and indicate which method should be used. Be certain to clearly label your schedule so that anyone who looks at the file later can determine where your numbers came from and the authority for your calculations. The manager has suggested that, at a minimum, you consult the following authorities:

• IRC Secs. 1(h), 168, 704, 1231, 1245

• Prop. Reg. Sec. 1.168-5(b)

• Reg. Sec. 1.704-1(b)(2)(iv)(g)(3)

• Reg. Sec. 1.704-3