hunter and prey form the take it all partnership. hunter contribute a rifle with a fmv...

hunter and prey form the take it all partnership. hunter contribute a rifle with a fmv 15,000 and an adjusted basis of 8,000 for a 30 percent interest in the partnership. prey performs services for the 70 percent partnership interest which is value at 10,000. how much gainis recognized by hunter, how much gain from prey, and what is the classification of preys income?

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Expert Solution

Hey there !!

Generally, Neither a partner nor the partnership recognizes a gain or loss when a person contributes property to the partnership in exchange for a partnership interest.
When a partner contributes property to a partnership in exchange for partnership interest you do not recognize gain or loss on the contribution.
The basis you had in the property becomes both the basis the partnership gets in the property and the basis you get in the partnership interest you receive.
If contributed property is subject to a mortgage or if the partnership assumes a partner's liabilities, the basis of that partner's interest is reduced by the liability assumed by the other partners.

Therefore, in the present case, Hunter has contributed an asset valued at $15,000 to the partnership, with a basis to you of $8,000 in exchange for a 30% partnership interest, Partnership will have no gain on the contribution. The basis in the interest Hunter receives and partnership’s basis in the Asset are both $15,000.

Same is the case with Partner Prey. The income will be classified as Ordinary income itself.

I hope the solution is clear to you now.....do let me know if you have any other doubts !!!

All the best !! happy studying :)

ekkarill92 answered 1 year ago

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