Question

1. a, b, and c agree to form a real estate investment partnership. they decide to form an equal, cash-method, general partnership, with each contributing property worth $300,000. A contributes cash in that amount; B contributes raw land purchased for $100,000 and held for two years; C contributes publicly traded stock purchased for $400,000 and held for six months. The parties anticipate a serious exploration of the real estate market and will either hold the real estate and any subsequently acquired real estate for appreciation or will construct an apartment building for rental purposes.

a. what gain or loss is recognized by each partner as a result of these contributions?

b. what is the tax basis of each partner's interest in the partnership?

c. what is the partnership's basis in each asset?

d. what is each partner's holding period for his partnership interest?

e. what is the partnership's holding period for its assets?

2. same as 1. above, expect that, two years after formation of the partnership, D acquires an interest in the partnership in exchange for contributing a parcel of land that adjoins the partnership's original property. D purchased this parcel for $200,000, and it is worth $400,000 at the time of contribution. At that time, the partnership's original land has appreciated in value to $500,000, the stock contributed by C has recovered to $400,000 in value, and the partnership continues to hold $300,000 in cash as its only other asset.

a. what is D's percentage interest in the partnership?

b. what gain or loss is recognized by D as a result of her contribution?

c. what gain or loss is recognized by the other partners as a result of D's contribution?

3. same as 1. above, except that B contributes publicly traded stock rather than land

a. what gain or loss is recognized by each partner as a result of these contributions?

b. what is the tax basis of each partner's interest in the partnership?

c. what is the partnership's basis in each asset?

d. what is each partner's holding period for his partnership interest?

e. what is the partnership's holding period for its assets?

Answer 1

ANSWER :

Part 1.

a. Contributions to a partnership are generally tax free. No gain or loss is recognised by a partnership or any of its partners as a result of a contribution of a property by a partner to the partnership in exchange of a partnership interest.

b. The partner's capital account and outside basis are not the same. The partner's capital account measures the partner's investment in the capital of the firm. here it is $3,00,000 each.

   The outside basis measures the adjusted basis of the partner's partnership interest. Here they are :

     A      NA    B. The FMV of land Purchased for $100,000 - now $ 300,000 and C - The FMV of stocks purchased at $4,00,000 - is now $3,00,000.

c. Partnership's basis in the assets contributed is generally the contributing partner's adjusted tax basis

in the property , plus any gain or loss recognised by the partner under the invest . These involves of high-basis, low-value basis .

Here it is $300,000 of the Land purchsed at $1,00,000 by B and $300,000 on the Stock purchsed by C at $4,00,000.

d.Holding period of partner's partnership interest : If the partnership interest is received in exchange of for money or other assets , the partner's holding period commences the day the interest is acquired. That is the contributing date . So here it is the date of constitution of the partnership .

e. Partnership's holding period for its assets : The partnership's holding period for the assets contributed includes the contributor's holding period too. That is in the case of B's land holding of 2 years and C' stock holding of 6 months too.

Part b. Admission of D as a partner by his purchasing interest in the partnership.

    a. The new parnter purchases interest in the partnership from the existing partners in the book value. The transaction is recorded by Cerediting the capital of D and debiting the capital of the existing partners . So here the amount contributed by D will be $2,00,000 . The capital of the firm will remain at $9.00,000. So D's % of interest $2,00,000/900000 = 22.22 %

b. No gain or loss is to be recognised by D.

c. No need for the other partners to recognise any gain or loss

Part C.

    Even if B contributes shares insted of the land the as per the Part A of the question , the basic terms of Partnership interest, partnership basis , partner's basis , holding period etc etc will not change.

NOTE : Due to time constraint I am not able to complete the part b and Part c satisfactorily.