Question

Problem 21-28 (LO. 3, 8)

Emma and Laine form the equal EL Partnership. Emma contributes cash of $100,000. Laine contributes property with an adjusted basis of $40,000 and a fair market value of $100,000.

If an amount is zero, enter "0".

a. How much gain, if any, must Emma and Laine recognize on the contributions?

Emma recognizes a gain of $ on the transfer and Laine recognizes a gain of $.

b. Emma's tax basis in her partnership interest is $. Her § 704(b) book basis is $.

c. Laine's tax basis in her partnership interest is $. Her § 704(b) book basis is $.

d. The partnership will take a $   basis in the assets it receives.

e. How will the partnership account for the difference between the basis and value of the property transferred by Laine?

The partnership will treat the $ difference between the basis and fair market value of the property Laine contributed as a precontribution   that   allocated to Laine when the property is sold or as described under the Regulations if the property is depreciable.

Answer 1

a)there is no gain on a contribution of property to the partnership . No taxes are due on any gain until the property is sold or otherwise disposed of.

Emma recognizes a gain of $0 on the transfer and Laine recognizes a gain of $0.

b). Emma's tax basis in her partnership interest is $100000. Her § 704(b) book basis is $ 100000

when cash is contributed tax basis and book is the amount actually paid i.e $100000

c)Laine's tax basis in her partnership interest is $40000. Her § 704(b) book basis is $100000.

When a partner contributes property to the partnership, the partnership's basis in the contributed property is equal to its fair market value (FMV).

The tax basis is the cost to the individual.

d) the basis of the contributed property in the hands of the partnership is its adjusted basis of the property + cash Contribution

The partnership will take a $ 40000 basis in the assets it receives + $100000

=$140000

e) The partnership will treat the $ 60000 difference between the basis and fair market value of the property Laine contributed as a pre contribution that allocated to Laine when the property is sold or as described under the Regulations if the property is depreciable. ( 100000-40000)