Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago.This year the land is distributed to Sergio,another partner in the partnership.At the time of distribution,the land had a $12,000 FMV.How much gain should Mirabelle and Sergio recognize?

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When property is distributed from a partnership, the partner receiving the property takes a basis in the property equal to their adjusted basis in their partnership interest immediately before the distribution. In this case, since the land was contributed to the partnership by Mirabelle four years ago, her adjusted basis in her partnership interest would include the basis of the contributed land (which she would have reduced by any partnership losses or increased by any partnership income over the past four years). Therefore, her basis in the land at the time of the distribution would be $5,000. Since the FMV of the land at the time of distribution was $12,000, she would recognize a gain of $7,000 ($12,000 FMV - $5,000 adjusted basis).

Sergio, as the recipient of the distributed property, would take a basis in the property equal to Mirabelle's adjusted basis in the property immediately before the distribution. Since Mirabelle's adjusted basis was $5,000 and this is also Sergio's basis, he would not recognize any gain or loss upon receipt of the property. Therefore, only Mirabelle would recognize gain in this transaction, and the total gain recognized would be $7,000.

Mirabelle Contributed Land with a $5,000 Basis and a $9,000