If a partner contributes depreciable property to a partnership in exchange for a partnership interest,the depreciation recapture potential of the contributed assets does not carry over to the partnership.

Question

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When a partner contributes depreciable property to a partnership in exchange for a partnership interest, the depreciation recapture potential of the contributed assets does carry over to the partnership. This means that if the partnership later sells the assets and realizes a gain, some or all of the gain may be subject to depreciation recapture, which is taxed at a higher rate than other forms of gain.

If a Partner Contributes Depreciable Property to a Partnership in Exchange