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Partnership Calculation of Basis, Gain/Loss

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The MP Partnership was formed to acquire land and subdivide it as residential housing lots. On July 1, 2007, Miranda contributed land valued at $300,000 to the partnership, in exchange for a 50% interest in MP. She had purchased the land in 1999 for $140,000 and held it for investment purposes (capital asset). The partnership holds the land as inventory. On the same date, Paul contributed land valued at $300,000 that he had purchased in 2000 for $350,000. He also became a 50% owner. Paul is a real estate developer, but this land was held personally for investment purposes. The partnership holds this land as inventory. In 2008, the partnership sells the land contributed by Miranda for $340,000. In 2009, the partnership sells one-half of the subdivided real estate contributed by Paul for $140,000. The other half is finally sold in 2014 for $160,000

a) What is each partner's initial basis in his or her partnership?
b) What is the amount of gain or loss recognized on the sale of the land contributed by Miranda? What is the character of this gain or loss?
c) What is the amount of gain or loss recognized in 2009 and 2014 on the sale of the land contributed by Paul? What is the character of this gain or loss?

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Solution Summary

MP Partnership acquired land as inventory and the problem tracks partner basis, and computation of gains on sale in later years.

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MP Partnership
Basis calculations

Excel attached

50% 50%
Miranda Paul Total

7/1/2007 a. Land contributed 300,000 No individual gain to her on contribution
Land contributed 300,000 No individual loss to him on contribution

Note 1 There is a rule which would allow Paul to take the loss on transfer to an investment company under Code Sec 707c but a real estate developer is not usually an ...

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