Cheryl and Nina formed a partnership.Cheryl received a 40% interest in partnership capital and profits in exchange for contributing land with a basis of $60,000 and a fair market value of $80,000.Nina received a 60% interest in partnership capital and profits in exchange for contributing $120,000 of cash.Three years after the contribution date,the land contributed by Cheryl is sold by the partnership to a third party for $90,000.How much taxable gain will Cheryl recognize from the sale?

Question

Quizplus · Accepted Answer

Section 704(c)(1)(A)requires that any precontribution gain must be allocated entirely to Cheryl.Therefore,Cheryl is allocated the $20,000 precontribution ("built-in")gain and 40% ($4,000)of the $10,000 post-contribution gain.

Cheryl and Nina Formed a Partnership