The Johnson Limited Partnership was formed on January 1, 2021. The partnership used the accrual method of accounting and a calendar year for federal income tax purposes. On February 2, 2021, Johnson bought the Essex condos for a total price of $5,000,000. Of the purchase price, $4,000,000 was allocated to buildings and $1,000,000 allocated to land.

Johnson financed the purchase with a 15 year, 3 percent interest rate, $4,500,000 mortgage. Johnson has agreed to share 5 percent of the gross rental income to a corporate general partnership by the name of Foley Property Management.

On January 20, 2021, undeveloped land under the name Pinnacle was contributed by a client Shane Stone in exchange for a 38 percent limited partnership interest. This means that Stone will receive 40 percent of the 95 percent allocations to the limited partners. The appraised value of the land on the date contributed was $75,000 and Stone's tax basis in the property is $50,000.

Shane Stone is a marine biologist employed by the local aquarium. Stone collected a salary of $330,000. Additionally, Stone earned $19,400 of dividend and capital gain income from his mutual funds, and an allocation of $20,600 of operating business income from a wind farm partnership. Stone had a 0.3 percent limited partnership interest in the wind farm.

A summary of Johnson's operating revenues and expenses for 2021 can be found below

*Johnson financed the negative cash flow from operations with short term recourse borrowing. The management fee is not included in the above expense.

For January 1 December 31, 2021 Gross rental revenues $ 2,100,000 $ Operating expenses for properties Repairs and maintenance Interest expense Property taxes 1,700,000 212,000 126,000 110,000 2,148,000 Net cash flow from operations * $ (48,000) 1 Revised Taxable income/Loss for Johnson Real Estate Limited Partnership = field you should populate 2 $2,100,000 $1,700,000 212,000 126,000 4 Gross rental revenues 5 6 Operating expenses for properties 7 Repairs and maintenance 8 Interest expense Guaranteed payment to Foley Property 9 Management 10 MACRS cost recovery 11 Property taxes 12 13 Net cash flow from operations * 14 15 0 110,000 automatically populated from Cell B26 below 2,148,000 ($48,000) 16 17 18 19 Calculation of MACRS Depreciation Deduction 20 21 Depreciable basis 22 /MACRS useful life 23 Annual depreciation 24 x Months in service, 2021 25 / full year 26 Depreciation deduction, 2021 For January 1 December 31, 2021 Gross rental revenues $ 2,100,000 $ Operating expenses for properties Repairs and maintenance Interest expense Property taxes 1,700,000 212,000 126,000 110,000 2,148,000 Net cash flow from operations * $ (48,000) 1 Revised Taxable income/Loss for Johnson Real Estate Limited Partnership = field you should populate 2 $2,100,000 $1,700,000 212,000 126,000 4 Gross rental revenues 5 6 Operating expenses for properties 7 Repairs and maintenance 8 Interest expense Guaranteed payment to Foley Property 9 Management 10 MACRS cost recovery 11 Property taxes 12 13 Net cash flow from operations * 14 15 0 110,000 automatically populated from Cell B26 below 2,148,000 ($48,000) 16 17 18 19 Calculation of MACRS Depreciation Deduction 20 21 Depreciable basis 22 /MACRS useful life 23 Annual depreciation 24 x Months in service, 2021 25 / full year 26 Depreciation deduction, 2021