Aissa has just become a partner of the Gratitude Partnership. She has some vacant land that is in a perfect location for a building the partnership wants to construct. As her initial capital contribution, she transfers the land to the partnership. The land cost her $45,000 and has a fair market value of $95,000. No consideration is received from the partnership. What are the tax consequences of this transaction?
A)Aissa will have disposed of the land for its original cost of $45,000.
• The adjusted cost base of her partnership interest will be $45,000.
• The partnership will have acquired the land for $45,000.
B)Aissa will have disposed of the land for $95,000 resulting in a taxable capital gain of $25,000.
• The adjusted cost base of her partnership interest will be $95,000.
• The partnership will have acquired the land for $95,000.
C)Aissa will have disposed of the land for $95,000 resulting in a taxable capital gain of $25,000.
• The adjusted cost base of her partnership interest will be $70,000.
• The partnership will have acquired the land for $70,000.
D)Aissa will have disposed of the land for $45,000.
• The adjusted cost base of her partnership interest will be $95,000.
• The partnership will be considered to have acquired the land for $95,000.

Question

Aissa has just become a partner of the Gratitude Partnership. She has some vacant land that is in a perfect location for a building the partnership wants to construct. As her initial capital contribution, she transfers the land to the partnership. The land cost her $45,000 and has a fair market value of $95,000. No consideration is received from the partnership. What are the tax consequences of this transaction?
A)Aissa will have disposed of the land for its original cost of $45,000. 
• The adjusted cost base of her partnership interest will be $45,000.
• The partnership will have acquired the land for $45,000.
B)Aissa will have disposed of the land for $95,000 resulting in a taxable capital gain of $25,000. 
• The adjusted cost base of her partnership interest will be $95,000.
• The partnership will have acquired the land for $95,000.
C)Aissa will have disposed of the land for $95,000 resulting in a taxable capital gain of $25,000.
 • The adjusted cost base of her partnership interest will be $70,000.
• The partnership will have acquired the land for $70,000.
D)Aissa will have disposed of the land for $45,000. 
• The adjusted cost base of her partnership interest will be $95,000.
• The partnership will be considered to have acquired the land for $95,000.

Quizplus · Accepted Answer

Aissa is considered to have disposed of the land at its fair market value of $95,000, resulting in a taxable capital gain of $50,000 ($95,000 - $45,000). The adjusted cost base of her partnership interest will be $95,000, and the partnership will have acquired the land for $95,000.

Aissa Has Just Become a Partner of the Gratitude Partnership