At the formation of the BD Partnership, Betty contributes land with a basis of $10,000 and an FMV of $30,000 and Dick contributes cash of $30,000. Betty and Dick share profits and losses equally. When the land is sold two years later for $50,000, Betty must recognize a gain of
A)$10,000.
B)$20,000.
C)$30,000.
D)$40,000.

Question

Quizplus · Accepted Answer

Betty must recognize a gain of $30,000, which is the difference between the land's fair market value (FMV) at the time of contribution to the partnership ($30,000) and her original basis in the land ($10,000). The sale price of the land two years later does not affect the gain recognized upon contribution to the partnership.

At the Formation of the BD Partnership, Betty Contributes Land