Question

1. In 2017, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits. In 2020, the partnership distributes this property to Isabel, also a 25% partner, in a current distribution. The fair market value had increased to $30,000 at the time the property was distributed. Isabel's and Adrianna's bases in their partnership interests were each $40,000 at the time of the distribution.

   If there is no gain or loss or if an amount is zero, enter "0".

   a. How much gain or loss, if any, does Adrianna recognize on the distribution to Isabel?
   Adrianna recognizes _ of $ _.

   What is Adrianna's basis in her partnership interest following the distribution?
   $_.

   b. What is Isabel's basis in the land she received in the distribution?
   $_.

   c. How much gain or loss, if any, does Isabel recognize on the distribution?
   Isabel recognizes _ of $ _ on the distribution of the property.

   What is Isabel's basis in her partnership interest following the distribution?
   $_.

   d. What if Isabel later sold the land for its $30,000 fair market value? How would you characterize this transaction for Isabel and Adrianna?

   Isabel would recognize _ of $_.

   This result appears _ because _ pays tax on postcontribution gain, and _ pays tax on precontribution gain.

   e. Assume Adrianna originally contributed the property to the partnership in 2008.

   If Adrianna originally contributed the property to the partnership in 2008, does she recognize any gain or loss on the distribution to Isabel?
   She recognizes _ of $_.

2. Isabel's basis in the property would be $_.

Answer 1

a)

On distribution to Isabel, Adrianna will recognise gain equal to a number of amount of pre contribution gain on added property (25000-16000)
$9000
The capital basis will be increased by the gain $9000 and will equal (40000+9000)
$ 49000
b)

Isabel basis in property distributed will be equal to a market value of the land before the distribution of asset $ 25000.

c)

Isabel recognizes no gain or loss on the distribution of the property.

Isabel basis in her partnership interest is reduced by her basis in the distributed property of $25000 to $15000.
d)

If Isabel sold the land immediately after the distribution, she would recognize = Fair market value - Basis in property
30000 - 25000 she would recognize = $5000 gain
The overall result is equitable because Isabel pays tax on post contribution gain, and Adrianna pays tax on precontribution gain.

e

If the precontribution gain property had been contributed to the partnership more than seven years prior to the distribution of the property to Isabel, Adrianna would not be required to recognize gain on the distribution, and Isabel’s basis in the property would be $16000