Question

1. Lucy and Benny formed Beard Partnership in 2006. Lucy’s ownership (P&L %) is 65% and Benny’s ownership (P&L %) is 35%. Lucy contributed cash of $90,000 and equipment with FMV of $325,000 and basis of $250,000. Benny contributed land with FMV of $215,000 and adjusted basis of $160,000. The land was used by Benny in his sole proprietorship prior to its contribution to the partnership. Beard Partnership sells the land in 2019 for $2,000,000.(6 Points) a. What is Lucy’s outside basis in the partnership immediately after formation? b. What is Benny’s outside basis in the partnership immediately after formation? c. What amount of gain will be recognized by Benny on the sale of the land in 2019?

Answer 1

Ans.(a)

Lucy's outside basis

Adjusted basis of equipment contributed $250,000

(+) cash contribution    $90,000

Lucy's outside basis $340,000

Ans.(b)

Benny's outside basis

Adjusted basis of land contributed $160,000

(+) cash contribution NIL

Benny's outside basis $160,000

Ans.(c)

Beard Partnership

Gain on sale of land

Sale Price of land   $2,000,000

(-) FMV of land $215,000

Gain $1,785,000

Benny

Benny's share in partnership = 35%

Gain to be recognized by benny = 178500035%

=$624,750