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

Question

Quizplus · Accepted Answer

Clark's adjusted basis in the partnership is $160,000, which remains the same even after the sale of the land. Lois's adjusted basis in the partnership is $90,000 (her basis in the land) + $70,000 (her share of the partnership profits) = $160,000.

When the land is sold for $210,000, the partnership recognizes a gain of $50,000 ($210,000 - $160,000). This gain is allocated equally to Clark and Lois, resulting in $25,000 of gain to Clark and $25,000 + $45,000 = $70,000 of gain to Lois.

Therefore, option D is correct.

Clark and Lois Formed an Equal Partnership Three Years Ago