Clark and Lois formed an equal partnership three years ago.Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV.Three years later the land is sold for $210,000.The tax results to Clark and Lois are
A)$25,000 of gain to both Clark and Lois.
B)$50,000 of gain to both Clark and Lois.
C)$25,000 of gain to Clark and $70,000 gain to Lois.
D)$25,000 of gain to Clark and $95,000 gain to Lois.

Question

Quizplus · Accepted Answer

When the land is sold, Lois will recognize a gain of $70,000 (selling price of $210,000 minus adjusted basis of $90,000), which will be split equally between her and Clark, resulting in a $35,000 gain for each of them. In addition, since Clark's initial contribution was cash, he has no basis in the land and will also recognize a gain of $25,000 (selling price of $210,000 minus his half of the partnership's basis of $80,000). Therefore, the total gains for Clark and Lois will be $25,000 and $95,000 respectively, making choice D the correct answer.

Clark and Lois Formed an Equal Partnership Three Years Ago