Question

Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $10,000 of cash and land with an FMV of $55,000. Her basis in the land is $20,000. Andrew contributes equipment with an FMV of $12,000 and a building with an FMV of $33,000. His basis in the equipment is $8,000, and his basis in the building is $20,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew

Answer 1

The correct answer is $0.

Step-by-step explanation:

According to the scenario, both partners have contributed the land and building for interest.

But under section 721a, it states that in the case of submission of land to the partnership in return for a share in the partnership no benefit or loss shall be acknowledged to a partnership or to any of its members.

So, from the above statement, it is clear that there will be no gain or loss to both partners.

Hence, $0 gain is recognized on the transfer of these assets from Sue and Andrew