Sean,Penelope,and Juan formed the SPJ partnership by each contributing assets with a basis and fair market value of $200,000.In the following year,Penelope sold her one-third interest to Pedro for $225,000.At the time of the sale,the SPJ partnership had the following balance sheet:
$\begin{array} { l }
& \text {Basis }& \text { FMV}\
\text { Cash } & \$ 200,000 & \$ 200,000 \
\text { Land } & {\$ 400,000} &{\$ 475,000}\
&{\$ 600,000}&{\$ 675,000}
\end{array}$
Shortly after Pedro became a partner,SPJ sold the land for $475,000.What are the tax consequences of the sale to Pedro and the partnership (1)assuming there is no Section 754 election in place,and (2)assuming the partnership has a valid Section 754 election?

Question

Sean,Penelope,and Juan formed the SPJ partnership by each contributing assets with a basis and fair market value of $200,000.In the following year,Penelope sold her one-third interest to Pedro for $225,000.At the time of the sale,the SPJ partnership had the following balance sheet:
 $\begin{array} { l  }
& \text {Basis }& \text { FMV}\
\text { Cash } & \$ 200,000 & \$ 200,000 \
\text { Land } & {\$ 400,000} &{\$ 475,000}\
&{\$ 600,000}&{\$ 675,000}
\end{array}$
 Shortly after Pedro became a partner,SPJ sold the land for $475,000.What are the tax consequences of the sale to Pedro and the partnership (1)assuming there is no Section 754 election in place,and (2)assuming the partnership has a valid Section 754 election?

Quizplus · Accepted Answer

The Answer of Sean,Penelope,and Juan formed the SPJ partnership by each contributing assets with a basis and fair market value of $200,000.In the following year,Penelope sold her one-third interest to Pedro for $225,000.At the time of the sale,the SPJ partnership had the following balance sheet:
 $\begin{array} { l  }
& \text {Basis }& \text { FMV}\
\text { Cash } & \$ 200,000 & \$ 200,000 \
\text { Land } & {\$ 400,000} &{\$ 475,000}\
&{\$ 600,000}&{\$ 675,000}
\end{array}$
 Shortly after Pedro became a partner,SPJ sold the land for $475,000.What are the tax consequences of the sale to Pedro and the partnership (1)assuming there is no Section 754 election in place,and (2)assuming the partnership has a valid Section 754 election?

Sean,Penelope,and Juan Formed the SPJ Partnership by Each Contributing Assets