Jesse and Karla form a “50/50” partnership. Jesse contributes property FMV of $4
ID: 2429582 • Letter: J
Question
Jesse and Karla form a “50/50” partnership. Jesse contributes property FMV of $40,000 9basis of $20,000). Karla contributes $40,000 in cash. The property is later sold for $30,000. If the partnership uses the traditional method of allocation, how much gain does each partner recognize for both book and tax purposes?
Jesse recognizes a $10,000 gain for tax purposes and also a $10,000 gain for book purposes because the adjustment for book purposes cannot be less than the amount for tax purposes. Karla recognizes no gain or loss for book or tax purposes.
Both recognize a gain of $5,000 for tax purposes and a loss of $5,000 for book purposes because it is an equal “50/50” partnership.
Jesse recognizes a $10,000 gain for tax purposes and a $10,000 loss for book purposes because the adjustment for book purposes must be made so as to set his basis in the partnership interest equal to his capital account balance. Karla recognizes no gain or loss for book or tax purposes.
Jesse recognizes a $10,000 gain for tax purposes and a $5,000 loss for book purposes resulting in a disparity between his basis in the partnership and his capital account balance. Karla recognizes no gain or loss for tax purposes and a $5,000 loss for book purposes, also resulting in a $5,000 disparity between her basis in the partnership interest and her capital account balance.
A.Jesse recognizes a $10,000 gain for tax purposes and also a $10,000 gain for book purposes because the adjustment for book purposes cannot be less than the amount for tax purposes. Karla recognizes no gain or loss for book or tax purposes.
B.Both recognize a gain of $5,000 for tax purposes and a loss of $5,000 for book purposes because it is an equal “50/50” partnership.
C.Jesse recognizes a $10,000 gain for tax purposes and a $10,000 loss for book purposes because the adjustment for book purposes must be made so as to set his basis in the partnership interest equal to his capital account balance. Karla recognizes no gain or loss for book or tax purposes.
D.Jesse recognizes a $10,000 gain for tax purposes and a $5,000 loss for book purposes resulting in a disparity between his basis in the partnership and his capital account balance. Karla recognizes no gain or loss for tax purposes and a $5,000 loss for book purposes, also resulting in a $5,000 disparity between her basis in the partnership interest and her capital account balance.
Explanation / Answer
"Option D"
Why D?
Karla Has No Personal Inbuild Gain For this asset other than partnership Loss. It should be Deducted from Partnershp Basis.
Not relevant here but for understanding Contribution of Asset to partnership:
Partnership- Book Purpose Sales Proceeds 30,000 Fair Value for Partnership (40,000) Loss Recognised 10,000 Jesse Karla 5000 5000Related Questions
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