Khalid contributes land (fair market value of $700,000; adjusted basis of $200,000) and Dan contributes $700,000 cash to form Teal Partnership. Khalid and Dan each own a 50% interest. One year later, Teal sells the land for $800,000. How much gain is recognized by each partner?
A)$600,000 to Khalid, $0 to Dan.
B)$550,000 to Khalid, $50,000 to Dan.
C)$300,000 to Khalid, $300,000 to Dan.
D)$50,000 to Khalid, $50,000 to Dan.
E)None of the above.

Question

Quizplus · Accepted Answer

Khalid will recognize a gain equal to the selling price ($800,000) minus his adjusted basis ($200,000), which equals $600,000. Dan will recognize a gain equal to his share of the excess of the selling price over the basis ($100,000, which is 50% of $800,000 minus $200,000), which equals $50,000. Therefore, the answer is B, $550,000 to Khalid and $50,000 to Dan.

Khalid Contributes Land (Fair Market Value of $700,000; Adjusted Basis