George and James are forming GJ Partnership. George contributes $600,000 cash an
ID: 2528047 • Letter: G
Question
George and James are forming GJ Partnership. George contributes $600,000 cash and James contributes non-depreciable property with an adjusted basis of $400,000 and a fair market value of $750,000. The property is subject to a $150,000 liability, which is also transferred into the partnership and is shared equally by the partners for basis purposes. George and James share in all partnership profits equally except for any pre-contribution gain, which must be allocated according to the statutory rules for built-in gain allocations.
a.
?
What is James' adjusted tax basis for his partnership interest immediately after the partnership is formed?
b.
What is the partnership’s adjusted basis for the property contributed by James?
c.
?
If the partnership sells the property contributed by James for $800,000, how is the tax gain allocated between the partners?
a.
?
What is James' adjusted tax basis for his partnership interest immediately after the partnership is formed?
b.
What is the partnership’s adjusted basis for the property contributed by James?
c.
?
If the partnership sells the property contributed by James for $800,000, how is the tax gain allocated between the partners?
Explanation / Answer
a.
Basis of property contributed
$400000
Add: James’s share of partnership liability
75000
Less: James’s liability transferred to partnership
150000
James’s adjusted basis in the partnership interest:
$325000
b. Partnership’s basis (carryover basis) is $400,000.
c. James is allocated $375,000 of the gain and George is allocated gain of $25,000.
Sales price
$800000
Less: Adjusted basis
400000
Total gain on sale
$400000
James
George
Built-in (precontribution) gain
(350000
$0
Remaining gain
25000
25000
Gain allocated to partner
$375000
$25000
Basis of property contributed
$400000
Add: James’s share of partnership liability
75000
Less: James’s liability transferred to partnership
150000
James’s adjusted basis in the partnership interest:
$325000
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