Paul Sells One Parcel of Land (Basis of $200,000) for Its

question 98

Multiple Choice

Paul sells one parcel of land (basis of $200,000) for its fair market value of $250,000 to a partnership in which he owns a 75% capital interest. Paul held the land for investment purposes. The partnership is in the real estate development business, and will build residential housing (for sale to customers) on the land. Paul will recognize:

• A) $0 gain or loss.
• B) $37,500 ordinary income.
• C) $37,500 capital gain.
• D) $50,000 ordinary income.
• E) $50,000 capital gain.

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Definitions:

Further Processing Costs

Additional costs incurred when processing products beyond their initial production stage to enhance their value.

Selling Price

The amount a seller charges a buyer for a product or service, determined by various factors including cost, demand, and competition.

Variable Overhead Costs

Overhead costs that fluctuate with the level of production activity, such as utilities for the manufacturing plant.

Operating Capacity

The maximum output or productivity level that a company can achieve using its current resources under normal working conditions.