Liz and John formed the equal LJ Partnership on January 1 of the current year. Liz contributed $80,000 of cash and land with a fair market value of $90,000 and an adjusted basis of $75,000. John contributed equipment with a fair market value of $170,000 and an adjusted basis of $20,000. John had used the equipment in his sole proprietorship. How much gain or loss will Liz, John, and the partnership realize? How much gain or loss will Liz, John, and the partnership recognize? What bases will Liz and John take in their partnership interests? What bases will LJ take in the assets it receives? Are there any differences between inside and outside basis? Explain. How will the partnership depreciate any assets it receives from the partners? My answer. 1. None due to Section 721. 2. Liz recognizes a 15,000 gain on the land she contributed. John recognizes a 150,000 gain on the equipment he contributed. The partnership recognizes a 165,000 gain. 3. Liz has 155,000 basis in the partnership. John has a 20,000 basis in the partnership. 4. The Partnership has a 175,000 basis. 5. No, the inside basis must equal the outside basis. 6. The partnership must step in the shoes of the contributor’s depreciation and continue John’s depreciation schedule.
Liz and John formed the equal LJ Partnership on January 1 of the current year. Liz contributed $80,000 of cash and land with a fair market value of $90,000 and an adjusted basis of $75,000. John contributed equipment with a fair market value of $170,000 and an adjusted basis of $20,000. John had used the equipment in his sole proprietorship.
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How much gain or loss will Liz, John, and the partnership realize?
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How much gain or loss will Liz, John, and the partnership recognize?
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What bases will Liz and John take in their partnership interests?
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What bases will LJ take in the assets it receives?
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Are there any differences between inside and outside basis? Explain.
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How will the partnership
depreciate any assets it receives from the partners?
My answer.
1. None due to Section 721.
2. Liz recognizes a 15,000 gain on the land she contributed. John recognizes a 150,000 gain on the equipment he contributed. The partnership recognizes a 165,000 gain.
3. Liz has 155,000 basis in the partnership. John has a 20,000 basis in the partnership.
4. The Partnership has a 175,000 basis.
5. No, the inside basis must equal the outside basis.
6. The partnership must step in the shoes of the contributor’s depreciation and continue John’s depreciation schedule.
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