In return for a 10% interest in Sapphire Partnership, Lily transfers cash of $50,000 and land (basis of $200,000; fair market value of $300,000).Lily's basis in her Sapphire interest is $250,000.

Question

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Lily's basis in her Sapphire interest is the sum of the cash she contributed ($50,000) plus her adjusted basis in the property she contributed ($200,000), for a total basis of $250,000. Since her interest in Sapphire is valued at $250,000, her 10% interest is worth $25,000, which is 10% of the total $250,000 value of Sapphire.

In Return for a 10% Interest in Sapphire Partnership, Lily