Cheryl and Nina formed a partnership.Cheryl received a 40% interest in partnership capital and profits in exchange for land with a basis of $60,000 and a fair market value of $80,000.Nina received a 60% interest in partnership capital and profits in exchange for $120,000 of cash.Three years after the contribution date,the land contributed by Cheryl is sold by the partnership to a third party for $90,000.How much taxable gain will Cheryl recognize from the sale?

Question

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Cheryl's initial basis in the partnership is $60,000 (the basis of the land she contributed). The partnership sells the land for $90,000, resulting in a gain of $30,000 ($90,000 - $60,000). Cheryl's share of the gain is 40% of $30,000, which is $12,000. However, Cheryl's taxable gain is the entire $30,000 because she contributed the land, and under the partnership rules, the gain is allocated to the contributing partner to the extent of the pre-contribution gain.

Cheryl and Nina Formed a Partnership