Jangyoun sells investment land having a $30,000 basis to a partnership in which he has a 60% partnership interest. The partnership pays $26,000 (FMV)for the land. Later, the partnership sells the investment land to a nonpartner for $31,000. On the sale of the land, the partnership must recognize a
A)$0 gain or loss.
B)$1,000 capital gain.
C)$4,000 capital gain and $1,000 Sec. 1231 gain.
D)$5,000 capital gain.

Question

Quizplus · Accepted Answer

When Jangyoun sells the land to the partnership, there is no gain or loss recognized since the partnership pays FMV for the land.

When the partnership sells the land to a nonpartner for $31,000, the partnership will have a capital gain of $5,000 ($31,000 sales price - $26,000 FMV on acquisition).

Since Jangyoun has a 60% partnership interest, he will recognize 60% of this gain, or $3,000. This will be considered a long-term capital gain since the partnership held the land for more than one year.

Jangyoun Sells Investment Land Having a $30,000 Basis to a Partnership