Sue and Joan each have a 50- percent interest interest in SJ Partners LLP. Sue contributed land to SJ with an adjusted...
Sue and Joan each have a 50- percent interest interest in SJ Partners LLP. Sue contributed land to SJ with an adjusted tax basis of $10,000 and a fair market value of $35,000. What gain will be recognized by each of the partners if SJ sells the land to a third party for 35,000?
-Sue $0 Joan $0
- Sue $10,100. Joan $15,000
- Sue $17.500. Joan $ 17,500
- Sue $25,000. Joan $ 0
Homework Answers
Answer:
Correct answer is:
- Sue $25,000. Joan $ 0
Explanation:
While contributing adjusted tax basis of land = $10,000 (fair value = $35,000). As per Section 721 no gain is recognized at the time of contribution.
If SJ sells the land to a third party for 35,000, as per Section 704(c) , the entire gain of (35000 - 10000 =) $25,000 being pre-contribution gain would be allocated to Sue.
As such correction is option D and other options A, B and C are incorrect.
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