Question

Duncan has land that he purchased 5 years ago and equipment that he purchased this month. He contributes both to the DoNut Partnership in exchange for a partnership interest. What is DoNut's holding period for each asset?

a. Long-term for the land and short-term for the equipment; the holding period for both assets carries over from the partner.
b. Short-term for both the land and the equipment; the holding period starts over at the date of contribution.
c. Long-term for both the land and equipment; the longer holding period takes precedent for all assets contributed.
d. None of the above.

Answer 1

DoNut's holding period for the land is long-term since the land was held by Duncan for over a year before the contribution, and the holding period for the equipment is short-term since it was just purchased this month and is considered a new asset to the partnership.

Step-by-step explanation:

The DoNut Partnership's holding period for each asset that Duncan contributes will depend on the type of asset and the tax rules that apply to partnership contributions under the Internal Revenue Code. The holding period for long-term assets such as land, which has been held for more than one year, generally carries over to the partnership. In this case, since Duncan had the land for 5 years, DoNut's holding period for the land is also long-term. Conversely, for short-term assets like newly purchased equipment (held for one year or less), the holding period begins on the date of the contribution to the partnership, making it short-term.

Therefore, the correct answer is: a. Long-term for the land and short-term for the equipment; the holding period for both assets carries over from the partner. This means DoNut has a long-term holding period for the land and a short-term holding period for the equipment.