To the extent allowable, we may elect to use the depreciation and cost recovery methods,
including bonus depreciation to the extent available, that will result in the largest deductions being taken in the early years after assets subject to these allowances are placed in service. Please read Uniformity of Units.
Property we subsequently acquire or construct may be depreciated using accelerated methods permitted by the Code.
If we dispose of
depreciable or depletable property by sale, foreclosure or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation and depletion previously deducted and the nature of the property, may be subject to the
recapture rules and taxed as ordinary income rather than capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to property we own will likely be required to recapture some or all of those
deductions as ordinary income upon a sale of his interest in us. Please read Tax Consequences of Common Unit OwnershipAllocation of Income, Gain, Loss and Deduction and Disposition of Common Units Recognition of
Gain or Loss.
The costs we incur in selling our units (called syndication expenses) must be capitalized and cannot be
deducted currently, ratably or upon our termination. There are uncertainties regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us. The
underwriting discounts and commissions we incur will be treated as syndication expenses.
Valuation and Tax Basis of Our
Properties. The federal income tax consequences of the ownership and disposition of common units will depend in part on our estimates of the relative fair market values, and the initial tax bases, of our assets. Although we may from time to time
consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourself. These estimates and determinations of basis are subject to challenge and will not be binding on the IRS or the
courts. If the estimates of fair market value or determination of basis are later found to be incorrect, the character and amount of items of income, gain, loss or deductions previously reported by unitholders might change, and unitholders might be
required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or Loss. Gain or loss will be recognized on a sale of common units equal to the difference between the
amount realized and the unitholders tax basis for the units sold. A unitholders amount realized will be measured by the sum of the cash or the fair market value of other property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a unitholders share of our nonrecourse liabilities, the gain recognized on the sale of units could result in a tax liability in excess of any cash received from the sale.
Prior distributions from us that in the aggregate were in excess of cumulative net taxable income for a common unit and, therefore, decreased
a unitholders tax basis in that common unit will, in effect, become taxable income to the extent the common unit is sold at a price greater than the unitholders tax basis in that common unit, even if the price received is less than his
Except as noted below, gain or loss recognized by a unitholder, other than a dealer in units, on the sale or
exchange of a unit will generally be taxable as capital gain or loss. Capital gain recognized by an individual on the sale of common units held for more than twelve months will generally be taxed at the U.S. federal income tax rate applicable to
long-term capital gains. However, a portion of this gain or loss, which will likely be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to assets giving rise
to depreciation recapture, depletion recapture or other unrealized receivables or to inventory items we own. The term unrealized receivables includes potential recapture items, including depreciation and depletion
recapture. Ordinary income attributable to unrealized receivables and inventory items may exceed net taxable gain realized upon the sale of a common unit and may be recognized even if there is a net taxable loss realized on the sale of a unit. Thus,
a unitholder may recognize both ordinary income and a capital