Question

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 B’s holding period in B’s partnership interest?

	A.	Partner B is allowed a tacked holding period for 60% of the interest attributable to the equipment contributed and may therefore treat it as having been held long term. The holding period attributable to the remaining 40% of B’s interest begins the day following B’s contribution of inventory to the partnership.
	B.	Partner B is allowed a tacked holding period for 50% of the interest attributable to B’s basis in the equipment and inventory contributed and may therefore treat it as having been held long term assuming B also held the inventory for more than one year. The holding period attributable to the remaining 50% of B’s interest begins the day following B’s contribution of the equipment and inventory to the partnership.
	C.	Partner B is allowed a tacked holding period for 30% of the interest attributable to B’s basis in the equipment contributed and may therefore treat it as having been held long term. The holding period of the remaining 70% of B’s interest attributable to the equipment (to the extent subject to Section 1245 recapture) and inventory begins the day following B’s contributions to the partnership.
	D.	Partner B assumes a long term holding period in the partnership interest assuming B has held both the equipment and inventory for more than one year prior to contributing them to the partnership.

Answer 1

answer is option A

Partner B is allowed a tacked holding period for 60% of the interest attributable to the equipment contributed and may therefore treat it as having been held long term. The holding period attributable to the remaining 40% of B’s interest begins the day following B’s contribution of inventory to the partnership.

holding period relates to the asset that is terminated or disposed of. In the given case it will be related to equipment. the portion of tacked holding period will be calculated as follows:

B's Fair market value of asset resulting in holding period (equipment) / B's total fair market value (equipment and inventory) = 30000/(30000+20000) = 60%

The remaining 40% will now be attributable to inventory