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:

Competitive

A state of being in which entities vie against each other to achieve a goal, such as market dominance or winning a contest.

Profit-Maximizing

The process or strategy of adjusting operations and resources to achieve the highest possible profit.

Market Wage

The prevailing wage rate in a labor market for a given skill set, determined by supply and demand forces.

Output Price

The market price at which a final good or service is sold, affecting a firm’s revenue and production decisions.