Frank, Peter, and Zachary form a partnership and contribute the following assets

Question

Frank, Peter, and Zachary form a partnership and contribute the following assets:

                                    FMV                 Basis               Partnership %

Frank’s inventory          $ 45,000         $ 20,000                 33.3%

Peter’s Building $175,000         $150,000                 33.3%

Zachary’s Acct. Rec. $ 50,000         $           0                 33.3%

Peter's building has a mortgage of $135,000 which the partnership assumes.

A. Do any of the partners recognize any gain? If so, how much and why?

B. What is each partner's basis in his or her partnership interest?

C. What is the basis to the partnership in each asset?

D. How would your answer change with respect to Peter if his basis in the building was $85,000?

Explanation / Answer

a) If the partnership interest sold than we recognize gain

Franks Inventory $25000 (FMV-Basis)

Peter Building $25000

Zachary acc Rec $50000

B) When a partner contributes property to the partnership, the partnership's basis in the contributed property is equal to its fair market value (FMV)

Franks Inventory $45000

Peter Building $175000

Zachary acc Rec $50000

c)

Franks Inventory $20000

Peter Building $15000 (150000-130000)

Zachary acc Rec   

d) So the profit that could br recognised at the time of sale $175000-$85000=$90000

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