Michael contributes land with a value of $120,000 and a basis of $80,000 to the MNO Partnership in exchange for a 1/4 interest.Several months later,the partnership sells the land for $140,000.Of the gain on the land sale,$45,000 is allocated to Michael.

Question

Quizplus · Accepted Answer

When Michael contributes the land, his basis in the partnership becomes $80,000, which is 1/4 of the total basis of $320,000. When the partnership sells the land, it realizes a gain of $140,000 - $80,000 = $60,000. Michael's share of that gain is 1/4 x $60,000 = $15,000. However, the question says that $45,000 is allocated to Michael, which means he must have also received a distribution of $30,000 in cash or other property from the partnership. This is allowed under the partnership agreement and does not affect the tax treatment of the gain. So, the answer is true.

Michael Contributes Land with a Value of $120,000 and a Basis