Showing owner investment

[IATSD]

Just wanted to make sure I am showing this correctly on my client's return. We're filing a 1065 for a partnership that purchased a building. The building is worth 855,000 and the partnership was required to put 201,000 out of pocket down on the purchase. Since the partnership ONLY holds the building, The 201,000 would be a start-up cost and amortized over 15 years, correct?

[sjrcpa]

No.

I assume they got a loan for the remaining purchase price of the building?

[IATSD]

That is correct

[sjrcpa]

At the moment of purchase, Your Balance Sheet would show:

Real Estate Asset   $855,000

Mortgage payable    654,000

Partners Capital       201,000

[sjrcpa]

No startup costs in evidence.

[qbteachmt]

It helps not to use the word "worth." Take it one fact at a time.

They put money into the Partnership.

That's now an Asset = money. There is no Cost for that. It's just money. Nothing was bought or sold, yet. And there is nothing to amortize or depreciate. It's still there, as money. They didn't start anything, yet; there are no activities.

Then, they bought a building, so one asset (money) turned into another (Real Estate) and there is debt for the balance owed. That is Cost, or Basis, in the building. Not "worth."

And make sure to separate assets by class: Building, Land, outbuilding, improvements (parking, fencing?). That total Cost bought stuff and there it is, invested in that stuff.

[IATSD]

Thank you, this is what I was looking for. So regardless in proconnect, I just put the building (no land) in to depreciate the 855000 and the 201k as owners capital on the balance sheet distributed between the 4 partners, correct? 

[sjrcpa]

You have to separate the land and building components of the 855,000. 

I was simplifying.

[qbteachmt]

"I just put the building (no land) in to depreciate the 855000 and the 201k as owners capital on the balance sheet distributed between the 4 partners, correct?"

No. Once again, you are skipping steps.

Capital into the entity is Step 1. Until they have money, they can't have done anything. And you don't "distribute" or Split it. You would have how much each person put in. They formed an entity. Now, by putting in their funds, they empowered it.

Then, they take an action. In this case, they bought real estate, so stop here and figure out this asset event accordingly.

Next, how did they get it?

Part A = they used the entity Cash.

Part B = they went into Debt.

Two parts.

It should all balance.

No, you don't depreciate the total Cost. Again, you have to handle the assets appropriately. And depreciation is not an Assumption. For real estate, it depends on what was purchased and how it is used, or is it even in use at all?

I think you need some mentoring. This is a great project to learn from, because it likely isn't as complicated as what you might run into later in your career.