In return for services rendered to it by C, the ABC partnership transfers a one-fourth capital interest to C when it only has one asset, a tract of land with a basis of $20,000 and fair market value of $30,000.The partnership has no liabilities.As a result, ABC's recognized gain and basis in the land, respectively, are

Question

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When a partner contributes property to a partnership, the partnership's basis in the property is equal to the lesser of the property's adjusted basis or its fair market value. Here, C is receiving a one-fourth capital interest in exchange for services rendered. This is essentially a contribution of capital by C to the partnership. The fair market value of the land is $30,000, so the partnership's basis in the land will be $22,500 (one-fourth of $30,000).

ABC's recognized gain is equal to the excess of the fair market value of the property over its adjusted basis. Here, the adjusted basis of the land is $20,000, so the recognized gain is $10,000 ($30,000 - $20,000). Therefore, the correct answer is B) $2,500 and $22,500.

In Return for Services Rendered to It by C, the ABC