Allocation of Precontribution Gain. Last year, Patty contributed land with a $4,

Question

Allocation of Precontribution Gain. Last year, Patty contributed land with a $4,000 a basis 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 L 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

Patty's Income
Ordinary Income ($8,000 x 40% ) = $3200
Long-term capital gain:
Precontribution (Land FMV $10,000 - $4000) basis $6000
Post contribution (40% x (10,000 - $6000(precont.) $1600
Total Income/gain $10,800

Dave's Income
Ordinary Income ($8,000 x 60% ) = $4800
Long-term capital gain:
Post contribution (60% x (10,000 - $6000(precont.) $2400   
Total Income/gain    $7,200

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