Question

When Padgett Properties LLC was formed, Nova contributed land (value of $340,500 and basis of $85,125) and $170,250 cash, and Oscar contributed cash of $510,750. Both partners received a 50% interest in partnership profits and capital. a. How is the land recorded for § 704(b) book capital account purposes? For § 704(b) book capital account purposes, Padgett records the land at $ . b. What is Padgett's tax basis in the land? $ c. If Padgett sells the land several years later for $510,750, how much tax gain will Nova and Oscar report? Nova reports a $ gain and Oscar's gain is $ .

Answer 1

See the explanation below:

Step-by-step explanation:

a. How is the land recorded for § 704(b) book capital account purposes? For § 704

Debit cash with $170,250

Debit land with $340,500

Credit Nova's Capital account with $510,750

b. What is Padgett's tax basis in the land?

Padgett's tax basis in the land is $85,125 that is carried over.

c. If Padgett sells the land several years later for $510,750, how much tax gain will Nova and Oscar report?

Built in gain = $340,500 - $85,125 = $255,375

Gain from sale = $510,750 - $340,500 = $170,250

Share of gain from sale = $170,250 * 50% = $85,125

Gain to report by Nova = Built in gain + Share of gain from sale = $255,375 + $85,125 = $340,500

Gain to report by Oscar = Share of gain from sale = $170,250 * 50% = $85,125