Question

Joe, Kate, and Lisa form an equal 1/3 each partnership. Joe contributes land FMV of $20,000 (basis $15,000) and land was a Section 1231 asset previously. Kate contributes inventory FMV $10,000 (basis $7,500) and cash of $10,000. Lisa contributes equipment that she has depreciated over the past two years in an unrelated business. She bought the equipment for $24,000 and has taken $12,000 in depreciation. The FMV of it is $20,000 at the time of her contribution.

What basis and holding period will the partnership assume in the assets it receives from the contributing partners? If the partnership sold the equipment for $18,000 prior to placing it in service what would be the tax consequences to each person?

Answer 1

tax basis

15000(land joe) + 7500(inventory kate) + 20000(equipments lisa)

=42500

holding period

land is considered as long term asset therefore can have an indefinate life

inventory is held for the purpose of sale thus should have a holding period of less than a year

equipment has been depriciated to 20000 from 24000 in two years that means depriciation cost for two years is 4000 => depriciation costs of 2000 per year

24000/2000=12 ie life of 12 years

B. if the equipment had been sold before utilization for 18000 having fmv of 20000 it wouldve resulted in a loss of 2000 that wouldve resulted in a tax benifit as it reduces the future profit by 2000/3=677 for each of the partners