On January 1 of the current year, Sarah and Bart form an equal partnership. Sara

Question

On January 1 of the current year, Sarah and Bart form an equal partnership. Sarah makes a cash contribution of $60,000 and a property contribution (adjusted basis of $160,000; fair market value of $140,000) in exchange for her interest in the partnership. Bart contributes property (adjusted basis of $120,000; fair market value of $200,000) in exchange for his partnership interest. Which of the following statements is true concerning the income tax results of this partnership formation? a. Sarah has a $200,000 tax basis for her partnership interest. b. The partnership has a $140,000 adjusted basis in the property contributed by Sarah c. Bart recognizes an $80,000 tax gain on his property transfer. d. Bart has a $120,000 tax basis for his partnership interest. e. None of the statements is true.

Explanation / Answer

Solution-

d. Bart has a $120,000 tax basis for his partnership interest

Explanation-

In this case contribution is non-taxable also §§ 722 and 723 of the substitute and carry over rule apply.

The partnership interest of bart is same $120,000 related to the contribution towards property.

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