The RGBY LLC operating agreement provides that 50% of depreciation expense is allocated to Red, and all remaining income (including the remaining 50% of depreciation) is allocated equally among the four partners. Before guaranteed payments and depreciation, RGBY's net income is $120,000 for the year. RGBY's depreciation expense is $20,000, and it paid a guaranteed payment to Yellow of $8,000. Assume that all allocations and payments meet the substantial economic effect rules. After all deductions and special allocations are taken into account, Red is allocated a net deduction of $15,500 from the partnership.

Question

Quizplus · Accepted Answer

Red's net deduction is calculated as follows:Depreciation expense allocated to Red: $20,000 x 50% = $10,000Remaining net income allocated to Red: $120,000 - $20,000 - $8,000 = $92,000Red's share of remaining net income: $92,000 x 25% = $23,000Red's net deduction: $10,000 - $23,000 = $15,500

The RGBY LLC Operating Agreement Provides That 50% of Depreciation