Stella owns a 55% interest in a partnership. The partnership purchases land from

Question

Stella owns a 55% interest in a partnership. The partnership purchases land from Stella for $70,000 when her basis in the land is $100,000. The partnership also purchases equipment from Stella, which it subsequently places in service for use in its operations, for $25,000 when her basis in the equipment is $20,000. The equipment was a capital asset in Stella's hands. What basis in the land and equipment does the partnership take on? What is Stella's built in gains or losses and what type of income for the land and equipment does Stella have?

Explanation / Answer

Hey,

For Tax purpose: When a partner contributes property into partnership firm, partners basis is increased by the tax basis partner had in that asset. FMV is Ignored.

For Accounts Purpose: Fair Value of asset contributed is considered.

This Question relates to Tax purpose and so basis will be :

Land: 100000

Equipment: 20000

Built-in gain is Difference between FMV and Basis at time of sale of the asset.

Land: 100000-70000=30000(Loss)

Equipment: 20000-25000=5000(Gain)

Stella doesn't have any income from land and equipment in future. she will now have the share in profit from partnership only.

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