Brooke and John formed a partnership. Brooke received a 40% interest in partnership capital and profits in exchange for contributing land (basis of $30,000 and fair market value of $120,000). John received a 60% interest in partnership capital and profits in exchange for contributing $180,000 of cash. Three years after the contribution date, the land contributed by Brooke is sold by the partnership to a third party for $150,000. How much taxable gain will Brooke recognize from the sale?
A) $102,000
B) $90,000
C) $48,000
D) $36,000
E) $0

Question

Quizplus · Accepted Answer

Brooke's basis in the land is $30,000. The land was sold for $150,000, resulting in a gain of $120,000. Brooke's 40% interest in the partnership entitles her to 40% of the gain, which is $48,000. However, Brooke's basis in the land is stepped up to $120,000, resulting in a taxable gain of $30,000.

Brooke and John Formed a Partnership