Question

Partners A and B form a partnership where each receive a 50% interest in capital and...

Partners A and B form a partnership where each receive a 50% interest in capital and profits. Partner A contributes cash of $25,000 and land valued at $25,000. Partner A has a basis in the land of $20,000 and has held it for two years. Partner B contributes equipment (with a basis to B of $15,000 and a fair market value of $30,000) and inventory (with a basis to B of $10,000 and a fair market value of $20,000). Partner B would recognize Section 1245 gain of $15,000 on the hypothetical sale of the equipment to a third party at the time of contribution after having depreciated it for several years. What is A’s holding period in A’s partnership interest?

A.

Partner A is allowed a tacked holding period for 50% the interest attributable to the fair market value of land contributed and may therefore treat it as having been held long-term. The holding period attributable to the remaining 50% of A’s interest begins the day following A’s contribution of money to the partnership.

B.

Partner A is allowed a tacked holding period for 40% the interest attributable to A’s basis in the land contributed and may therefore treat it as having been held long-term. The holding period attributable to the remaining 60% of A’s interest begins the day following A’s contribution of both money and land with a net unrealized gain to the partnership.

C.

Partner A’s holding period in the partnership interest begins the day after A contributes the money and land to the partnership.

D.

Partner A assumes a long term holding period in the partnership interest attributable to the contributed land because contributions of money are disregarded for this purpose.

Homework Answers

Answer #1

Option A. Partner A is allowed a tacked holding period for 50% the interest attributable to the fair market value of land contributed and may therefore treat it as having been held long-term. The holding period attributable to the remaining 50% of A’s interest begins the day following A’s contribution of money to the partnership

Percentage of share for which the assets are contributed are important but not the basis of the contribution after contribution has made.

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