Ali, a Contractor, Builds an Office Building for a Construction

question 87

Essay

Ali, a contractor, builds an office building for a construction partnership in exchange for a capital and profits interest in the partnership worth $500,000. Which of the following statements is correct?
A) Ali recognizes no income and the partnership can deduct nothing in the current year.
B) Ali recognizes $500,000 of ordinary income and the partnership can deduct $500,000 in the current year.
C) Ali recognizes $500,000 ordinary income and the partnership deducts the $500,000 over the building's MACRS recovery period as a depreciation expense.
D) Ali recognizes ordinary income in the current year in an amount equal to the depreciation deduction the partnership claims this year for the $500,000 capitalized amount.

• A) Ali recognizes no income and the partnership can deduct nothing in the current year.
• B) Ali recognizes $500,000 of ordinary income and the partnership can deduct $500,000 in the current year.
• C) Ali recognizes $500,000 ordinary income and the partnership deducts the $500,000 over the building's MACRS recovery period as a depreciation expense.
• D) Ali recognizes ordinary income in the current year in an amount equal to the depreciation deduction the partnership claims this year for the $500,000 capitalized amount.

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Definitions:

Cerebrum

The largest part of the brain; it mainly includes the cerebral hemispheres.

Spinal cord

The cylindrical bundle of nerve fibers and associated tissue that is enclosed in the spine and connects nearly all parts of the body to the brain.

Frontal lobe

The part of the brain located at the front of each cerebral hemisphere, associated with reasoning, motor skills, higher level cognition, and expressive language.

Motor activity

Physical movements and actions generated by the body's muscle system.