An equal partnership is formed by Rita and Gerry. Rita contributes cash of $10,000 and a building with a fair market value of $150,000, adjusted basis of $55,000, and subject to a liability of $60,000. Gerry contributes cash of $100,000. What amount of gain must Rita recognize as a result of this transaction?

Question

Quizplus · Accepted Answer

Rita's contribution to the partnership is treated as a sale of the building. The amount of gain recognized is the difference between the fair market value of the building and its adjusted basis, which is $150,000 - $55,000 = $95,000. However, under Section 721 of the Internal Revenue Code, no gain or loss is recognized on the contribution of property to a partnership in exchange for a partnership interest. Therefore, Rita does not recognize any gain as a result of this transaction.

An Equal Partnership Is Formed by Rita and Gerry