Final regs. on allocating depreciation recapture among partners.

• Author: Debree, James
• Position: IRS regulations

The IRS has issued final regulations on the allocation of depreciation recapture among partners. These regulations adopt with revisions the proposed regulations published on Dec. 12, 1996.

Under Regs. Sec. 1.1245-1(e)(2)(i), a partner's share of depreciation recapture is the lesser of (1) the partner's share of total gain arising from the disposition of the property (gain limitation) or (2) the partner's share of depreciation or amortization from the property. When gain limitation prevents allocation to a partner, the depreciation recapture is allocated among those partners whose shares of total gain on the disposition of the property exceed their shares of depreciation or amortization from the property. The amount of unallocated depreciation each partner receives corresponds to the partner's relative share of the total gain on the property's disposition.

In addition, the final regulations provide special rules for determining a partner's share of depreciation or amortization from contributed property subject to Sec. 704(c). Under Regs. Sec. 1.1245-1(e)(2)(ii)(C)(1),a contributing partner's share of depreciation or amortization includes depreciation or amortization allowed or allowable before contribution.

Finally, Regs. Sec. 1. 1245-1(e)(2)(ii)(C)(2) provides that curative and remedial allocations generally reduce the contributing partner's share of depreciation or amortization and increase the noncontributing partners' shares of depreciation or amortization. In response to comments, the regulations clarify that curative and remedial allocations can reduce the contributing partner's share of depreciation or amortization to (but not below) zero. Once the contributing partner's share of depreciation or amortization reaches zero, the curative or remedial allocations do not affect the contributing partner's share of depreciation or amortization. They do, however, affect the noncontributing partners' shares of depreciation or amortization.

Other revisions...