On January 1 of the current year,Sarah and Bart form an equal partnership.Sarah makes a cash contribution of $60,000 and a property contribution (adjusted basis of $160,000;fair market value of $140,000)in exchange for her interest in the partnership.Bart contributes property (adjusted basis of $120,000;fair market value of $200,000)in exchange for his partnership interest.Which of the following statements is true concerning the income tax results of this partnership formation?
A)Sarah has a $200,000 tax basis for her partnership interest.
B)The partnership has a $140,000 adjusted basis in the property contributed by Sarah.
C)Bart recognizes an $80,000 gain on his property transfer.
D)Bart has a $120,000 tax basis for his partnership interest.
E)None of the statements is true.

Question

Quizplus · Accepted Answer

Sarah's tax basis in her partnership interest will be the sum of the cash and property contribution, or $60,000 + $160,000 = $220,000. The partnership's adjusted basis in the property contributed by Sarah will be her adjusted basis, or $160,000. Bart's tax basis in his partnership interest will be the fair market value of the property he contributed, or $200,000. He will not recognize any gain or loss on the transfer because it was made in exchange for a partnership interest. Therefore, statement D is true, while statements A, B, C, and E are false.

On January 1 of the Current Year,Sarah and Bart Form