David Contributes Investment Land with a Basis of $24,000 and an FMV

question 115

Multiple Choice

David contributes investment land with a basis of $24,000 and an FMV of $40,000 to a partnership for a 10% interest in partnership capital, profits, and losses. The land is subject to a $30,000 recourse liability, which is assumed by the partnership. The partnership has other recourse liabilities of $18,000. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. David must recognize a

• A)$3,000 capital gain.
• B)$3,000 capital loss.
• C)$1,200 capital gain.
• D)$1,200 capital loss.

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Definitions:

Title Examination

The process of reviewing and verifying the legal ownership and conditions of a property before its sale.

Final Contract

The conclusive agreement between parties, binding them to its terms and signaling the end of negotiations.

Financing Plan

A detailed strategy outlining how a project, purchase, or venture will be funded.

Initial Offer

The first proposal made by one party to another during negotiations.