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:

Hub-And-Spoke

A system used in transportation and distribution in which all traffic moves along spokes connected to a central hub, optimizing efficiency.

Point-to-Point

A direct connection or travel route between two specific locations without any intermediate stops or transfers, commonly used in transportation and telecommunications.

Critical Mass

Critical mass is a state or point at which a system or organization becomes self-sustaining or sufficiently large to maintain a certain status or level of activity.