Arnold is a partner in the Polar Partnership. He has some vacant land that is in a perfect location for a building the partnership wants to construct. He transfers the land to the partnership in exchange for $155,000 in cash. The land cost him $95,000 and has a fair market value of $140,000. What is the effect on the adjusted cost base of his partnership interest?
A)An increase of $155,000.
B)A decrease of $15,000.
C)An increase of $15,000.
D)A decrease of $60,000.

Question

Quizplus · Accepted Answer

Arnold receives $155,000 in cash for land with a basis of $95,000, resulting in a gain of $60,000. The adjusted cost base of his partnership interest decreases by the difference between the cash received and the land's basis, which is $155,000 - $95,000 = $60,000.

Arnold Is a Partner in the Polar Partnership