On July 1 of the current year, the R & R Partnership was formed to operate a bed and breakfast inn. The parnership paid $300 in legal fees for drafting the parnership agreement and $5000 for accounting fees related to organizing the entity. It also paid $10,000 in syndication costs to locate and secure investments from limited partners. In addition, before opening the inn for business, the entity paid $15,500 for advertising and $36,000 in costs related to an open house just before the grand opening of the property. The parnership opened the inn for business on October 1.
a) How are these expenses classified?
b) How much may the partnership deduct in its initial year of operation?
c) How are costs treated that are not deducted currently?
d) What elections must the partnership make in its initial tax return?
The syndication fees are not deductible so they become a part of the capital accounts.
a. The legal fees, accounting fees, advertising expenses and open house expenses are classified as start-up expenses. The syndication fees are not deductible as stated above.
b. The partnership ...
This solution consists of items pertaining to the start-up of a partnership for a bed and breakfast.