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financeguru2, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 136
Experience:  Several years of complex tax experience
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Can someone tell me the difference of partner's capital account

Customer Question

Can someone tell me the difference of partner's capital account calculated using tax basis vs calculated using 704(b) book? I saw 3 boxes on Sch K-1 line L. An example will be appreciated!
Submitted: 2 years ago.
Category: Tax
Expert:  financeguru2 replied 2 years ago.
704(b) book capital accounts are essentially book or financial statement capital accounts using tax rules. If there is property contributed with a different fair market value than its cost, GAAP capital accounts will record the contribution at cost, and 704(b) book will record the contribution at fair market value. From there on out, any book or financial statement activity will run through GAAP and 704(b) book capital accounts the same while taxable income/loss items will run through the tax basis capital account. Therefore, 704(b) is usually only applicable when real estate or some other appreciating/depreciating asset is contributed to a partnership. If cash is contributed, 704(b) and GAAP will equal each other.
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