Allocation of Precontribution Gain: Last year, Patty contributed land with a 4,0

Question

Allocation of Precontribution Gain: Last year, Patty contributed land with a 4,000 bais and a 10,000 FMV in exchange for a 40% profits, loss, and capital interest in the PD Partnership. Dave contributed land with an 8,000 basis and a 15,000 FMV for the remaining 60% interest in the partnership. During the current year, PD Partnership reported 8,000 of ordinary income and sold the land that Patty contributed for 14,000, thereby producing a taxable long term capital gain of 10,000 (14,000-4,000). What income or gain must Patty and Dave report from the PD Partnership in the current year?

Explanation / Answer

ORDINARY INCOME OF PARTNERSHIP = $8000

LONG TERM CAPITAL GAIN = $10000

TOTAL INCOME = $18000

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REPORTED INCOME BY PATTY

ORDINARY INCOME ($8000 * 40%) = $3200

LONG TERM CAPITAL GAIN ($10000 * 40%)= $4000

TOTAL INCOME = $7200

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REPORTED INCOME BY DAVE

ORDINARY INCOME ($8000 * 60%) = $4800

LONG TERM CAPITAL GAIN ($10000 * 60%)= $6000

TOTAL INCOME = $10800

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