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?

Question

Quizplus · Accepted Answer

Mirabelle's basis in the land is $5,000 and the FMV at the time of distribution is $12,000. Therefore, she has a built-in gain of $7,000. Since Sergio receives the land at its FMV, he does not recognize any gain. Mirabelle must recognize the built-in gain of $7,000 upon the distribution. Thus, the total recognized gain is $7,000.

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