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 o the sale, the SPJ partnership had the following balance sheet: $$\begin{array} { c c c }
& \text { Basis } & \text { FMV } \
\text { Cash } & \$ 200,000 & \$ 200,000 \
\text { Land } & \$ 400,000 & \$ 475,000 \
& \$ 600,000 & \$ 675,000
\end{array}$$ Shortly after Pedro became a partner, SPJ sold the land for $475,000. What are the tax consequences of the sale to and the partnership (1) assuming there is no Section 754 election in place, and (2) assuming the partnership has a 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 o the sale, the SPJ partnership had the following balance sheet: $$\begin{array} { c c c } 
& \text { Basis } & \text { FMV } \
\text { Cash } & \$ 200,000 & \$ 200,000 \
\text { Land } & \$ 400,000 & \$ 475,000 \
& \$ 600,000 & \$ 675,000
\end{array}$$ Shortly after Pedro became a partner, SPJ sold the land for $475,000. What are the tax consequences of the sale to and the partnership (1) assuming there is no Section 754 election in place, and (2) assuming the partnership has a 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 o the sale, the SPJ partnership had the following balance sheet: $$\begin{array} { c c c } 
& \text { Basis } & \text { FMV } \
\text { Cash } & \$ 200,000 & \$ 200,000 \
\text { Land } & \$ 400,000 & \$ 475,000 \
& \$ 600,000 & \$ 675,000
\end{array}$$ Shortly after Pedro became a partner, SPJ sold the land for $475,000. What are the tax consequences of the sale to and the partnership (1) assuming there is no Section 754 election in place, and (2) assuming the partnership has a Section 754 election?

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