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:

Gram-positive

Bacteria that retain the crystal violet stain used in the Gram staining method, indicating a thick peptidoglycan layer in their cell walls.

Gram-variable

Bacteria that do not consistently stain as either Gram-positive or Gram-negative due to variations in their cell wall structures.

Opaqueness

The quality of being impenetrable by light; not transparent or translucent.

Decant

To pour a liquid from one container into another, usually to separate a solid from a liquid or to allow sediment to stay behind.