Question

Juan contributes three parcels of property to the JKL Partnership in exchange for a 40% interest in the partnership. The properties were as follows:

                               

                            FMV                          Basis

Property A      $120,000                     $70,000

Property B       $180,000                     $160,000

Property C       $100,000                     $200,000

If Property A is later sold for $100,000, how much gain will Juan recognize?

Answer 1

Solution:

Juan gain is $ 30,000

Explanation:

1) Gain on sale = Sale Price - Basis of Property A = $ 100,000 - $ 70,000 = $ 30,000

2) Juan gain will be lower of per contribution gain( FMV - Basis) or recognized gain on sale.

3) Per-contribution gain is $50,000 ($120,000 - $ 70,000) and recognized gain is $ 30,000.

4) So, Juan is allocated with total recognized gain of $30,000.