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IPED After the Closing Conference CAPITAL ACCOUNTS 704(b) & MINIMUM GAIN Presented by Brad Elphick, CPA, Novogradac & Company LLP.

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Presentation on theme: "IPED After the Closing Conference CAPITAL ACCOUNTS 704(b) & MINIMUM GAIN Presented by Brad Elphick, CPA, Novogradac & Company LLP."— Presentation transcript:

1 IPED After the Closing Conference CAPITAL ACCOUNTS 704(b) & MINIMUM GAIN Presented by Brad Elphick, CPA, Novogradac & Company LLP

2 IPED After the Closing Conference CAPITAL ACCOUNTS Increases to partners capital accounts –Cash contributed –Fair market value of property contributed Net of liabilities assumed by partnership –Allocations of income or gain Decreases to partners capital accounts –Cash distributed –Fair market value of property distributed Net of liabilities assumed by partnership –Allocations of loss or deduction, most credits

3 IPED After the Closing Conference DeveloperInvestor Partnership Agreement TAX CREDIT S Capital Account Limited Partnership

4 IPED After the Closing Conference DeveloperInvestor Capital Account Limited Partnership

5 IPED After the Closing Conference DeveloperInvestor Capital Account Limited Partnership 704(b)!!! Does not receive credits or losses Cannot use credits or losses Must pay an adjuster to the Investor 704(b) Issues

6 IPED After the Closing Conference Minimum Gain What is it? –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 IPED After the Closing Conference Example of 704(b) problem 20X1 20X2 20X3 20X4 20X5 BALANCE SHEET LAND 1,000,000 BUILDING10,000,000 ACCUM DEP(1,000,000)(1,500,000)(2,000,000)(2,500,000)(3,000,000) TOTAL10,000,0009,500,0009,000,0008,500,000 8,000,000 PERM LOAN8,000,000 DEFERRED DEV FEE500,000 LP CAPITAL2,500,000 RETAINED EARNINGS(1,000,000)(1,500,000)(2,000,000)(2,500,000)(3,000,000) TOTAL10,000,0009,500,0009,000,0008,500,0008,000,000 INCOME STATEMENT REVENUE 500,000 OPERATING EXP(500,000) DEPRECIATION(500,000) NET LOSS(500,000)

8 IPED After the Closing Conference Calculation of Minimum Gain 20X120X220X320X420X5 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 10,000,000 9,500,000 9,000,000 8,500,000 8,000,000 QNR DEBT (8,000,000) MINIMUM GAIN (2,000,000) (1,500,000) (1,000,000) (500,000) - LP CAPITAL BEGINNING BAL 2,000,000 1,500,000 1,000, ,000 - NET LOSS (500,000) ENDING BAL 1,500,000 1,000, ,000 - (500,000)

9 IPED After the Closing Conference LIMITED PARTNER IRC 704(b) REALLOCATION

10 IPED After the Closing Conference Find FREE tax credit resources at: us at Questions???


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