In 2015, Ryce contributes non-depreciable property with an adjusted basis of $60

Question

In 2015, Ryce contributes non-depreciable property with an adjusted basis of $60,000 and a fair market value of $95,000 to the Montgomery Partnership in exchange for a one-half interest in profits and capital. In 2016, when the property’s fair market value is $100,000, the partnership distributes the property to Jarvis, the other one-half partner.

Which partner must recognize the built-in gain and what is the amount recognized? What is the effect on that partner’s basis in the partnership interest?

Explanation / Answer

Ryce Will recognize Profit of (95000-60000) + share of profit while distribution(50% of 100000-95000)

= 35000 + 50% of 5000 = 37500

Effect on Ryce basis in partnership interest.

Inside basis of Ryce in partnership = 95000

Outside basis of Ryce in partnership = 60000

Money received after distribution of asset = 50% of (100000-95000) = 2500

Therefore after ditribution of property the change in Ryce basis would be decrease of 2500.

Therefore adjusted outside basis of Ryce would be 60000-2500 = 57500.

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