Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago.This year the land is distributed to Sergio, another partner in the partnership.At the time of distribution, the land had a $12,000 FMV.How much gain should Mirabelle and Sergio recognize?

Question

Quizplus · Accepted Answer

When property is distributed to a partner in a partnership, the partner takes the same basis in the property as the partnership had in the property. In this case, since the partnership had a $9,000 FMV in the property, the partner who received the property takes a basis of $9,000.

Mirabelle will recognize a gain of $3,000 ($12,000 FMV - $9,000 basis), which is the difference between the FMV of the property at the time of distribution and her adjusted basis in the partnership.

Sergio's basis in the partnership will increase by the same amount that Mirabelle's basis decreases, so his new basis in the partnership will be $3,000 higher than before the distribution. Sergio will not recognize any gain or loss until he disposes of the property.

Mirabelle Contributed Land with a $5,000 Basis and a $9,000