Tim, Al, and Pat contributed assets to form the equal TAP Partnership.Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000).Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000).Pat contributed cash of $60,000 and a fully depreciated property ($0 basis) valued at $40,000.Which of the following tax treatments is not correct?
A)Tim's basis in his partnership interest is $120,000.
B)Al realizes and recognizes a loss of $10,000.
C)Pat realizes a gain of $40,000 but recognizes $0 gain.
D)TAP has a basis of $80,000, $50,000, and $0 in the land and property (excluding cash) contributed by Tim, Al, and Pat, respectively.
E)All of these statement are correct.

Question

Quizplus · Accepted Answer

Al contributes $100,000 ($60,000 cash + $40,000 FMV land) worth of assets with a basis of only $90,000 ($50,000 basis land + $40,000 FMV land - $10,000 loss). Therefore, he realizes and recognizes a loss of $10,000. All other statements are correct. Tim's basis is $120,000 ($40,000 cash + $80,000 basis land), Pat realizes a gain of $40,000 but recognizes $0 gain due to the fully depreciated property, and TAP has bases of $80,000 (Tim's land), $50,000 (Al's land), and $0 (Pat's property) in the contributed assets.

Tim, Al, and Pat Contributed Assets to Form the Equal