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Cash to Accrual Accounting: Partnership of Tom & Liz

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Tom and Liz form an equal partnership with a cash contribution of $60,000 from Tom and a property contribution (adjusted basis of $75,000, fair market value of $60,000) from Liz

a) How much gain or loss, if any does Liz realize on the transfer? May Liz recognize any gain or loss?
b) What is Tom's basis in his partnership interest?
c) What is Liz's basis in her partnership interest?
d) What basis does the partnership take in the property transferred by Liz?
e) Are there more effective ways to structure the formation?

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Solution Summary

The solution provides straight-forward answers for a, b, c and d. For part e, there is a narrative statement of the options available to Liz and the prospective outcomes.

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a. Liz has a loss of $15K on the land, but no loss is reported when the land is contributed to a partnership. Her contribution is valued at fair market of $60K.

b. Tom's basis is $60,000. There are no valuation issues ...

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