Kay and Larry Each Contribute Property to Become Equal Partners

question 72

Essay

Kay and Larry each contribute property to become equal partners in the KL General Partnership. Kay contributes office furniture with an adjusted basis of $40,000 and an FMV of $50,000, which she has depreciated using MACRS. Larry contributes land with a basis of $60,000 and an FMV of $50,000, which he had been holding as an investment. The partnership will use the land as a parking lot for their business.
a)What is the partnership's basis in each of the two pieces of property?
b)If the land that Larry contributed is sold four years after the contribution for $45,000, what is the amount and character of the gain or loss which Larry should report?

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Definitions:

Benzophenone

An aromatic ketone with the formula C13H10O, used as a photo initiator in polymer chemistry and as a flavoring agent.

Base-catalyzed Condensation

A chemical reaction where a base catalyzes the joining of two molecules with the loss of a small molecule like water, commonly used in the formation of larger organic molecules.

Synthesize

The chemical process of combining two or more entities to form a new compound.

Cyclohexene

A cyclic hydrocarbon with the formula C6H10, characterized by a single carbon-carbon double bond within a six-membered ring.