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

question 82

Multiple Choice

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 $500,000 of ordinary income and the partnership can deduct $500,000 in the current year.
• B)Ali recognizes no income and the partnership can deduct nothing 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:

Public Good

A good that is non-excludable and non-rivalrous, meaning it can be used by everyone and one person's use does not reduce its availability to others.

Private Good

A product or service that is consumable and excludable, meaning its use can be restricted to paying customers.

Pareto Optimal

A situation in the economy where optimizing the allocation of resources means that improving one person's situation leads to a decline in another's.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning that individuals cannot be effectively excluded from use, and use by one individual does not reduce availability to others.