On May 1 of the current year, Mr. Good contributed 500 shares of stock in Candid

Question

On May 1 of the current year, Mr. Good contributed 500 shares of stock in Candid Corporation to the partnership of Murphy & Wooster for a 25% interest in the partnership's capital and profits. The stock, which he purchased 10 years ago for $20,000, had a fair market value on May 1 of $ 100,000. On May 1 of the current year the fair market value of the partnership's net assets, after Good's contribution, was $400,000. What is the amount of Good's recognized gain in the current year on the exchange? A. $0 B. $80,000 ordinary income. C. $80,000 long-term capital gain. D. $80,000 Sec. 1231 gain.

Explanation / Answer

Ans A 0

The answer is 0 because neither the partner i.e Good nor the partnership i.e Murphy and wooster will recognize gain when the property is contributed to the partnership in exchange for partnership interest. so Good has given stock in exchange for 25% interest so no gain will be recognized (100000-80000). The holding period of property for partnership includes the holding period of the partner.

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