Question

On September 1, 2013, Leonard contributed land held for investment with a fair market value of $200,000 and an adjusted basis to him of $120,000 for a 20 percent interest in the income and capital of Office Complex Partnership. The land was intended for use as a building site for the partnership. The partnership opted to rent facilities and on September 2, 2018, sold the contributed land for $500,000. Assuming the partnership agreement was silent with respect to this particular asset, how much gain must Leonard report for this partnership sale?

Answer 1

Leonard's adjusted tax basis of the property = 120,000

The partnership's basis in the property is the same as the partner's basis in the property. Since the FMV is higher than the basis, then the gain in the value of the asset is not recognized.

Depreciation is 10% per year - therefore, WDV as on Sep 2, 2018 would be = 120,000(0.9)(0.9)(0.9)(0.9)(0.9) = 70,859 - We have to take 0.9 five times as it is a five year period before sale of asset.

Total gain on asset = 500,000 - 70,859 = 429,141

Contributing partner's gain would be (FMV - Dep) - (Basis after dep) = (200,000 - 81,902) - (70,859)   

                      = 118,098 - 70,859

                        = $47,239