George and James are forming the GJ Partnership. George contributes $600,000 cas
ID: 2557414 • Letter: G
Question
George and James are forming the GJ Partnership. George contributes $600,000 cash and James contributes land 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 60% by George and 40% by James for basis purposes. George and James also share 60% and 40% respectively in all partnership profits except for any pre-contribution gain, which must be allocated according to the statutory rules for built-in gain allocations.
Please show step by step calculations.
a.
?
What is James’s 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’s 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. James Adjusted tax basis: Adjusted basis of Land contributed 400000 Add:James share in property liability (150000*40%) 60000 460000 Less:Property liabilty transferred by James 150000 James Adjusted tax basis 310000 b. partnership’s adjusted basis for the property contributed by James=Adjusted basis of Land=$400000 c. Sales price 800000 Less: Adjusted basis 400000 Tax gain on sale 400000 Allocation of Tax gain: James George Pre-contribution gain (750000-400000) 350000 Remaining gain 50000 @ 40:60 20000 30000 Allocated tax gain 370000 30000
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