Question

When Padgett Properties LLC was formed, Nova contributed land (value of $358,500 and basis of $89,625) and $179,250 cash, and Oscar contributed cash of $537,750. 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 $ 358,500 . b. What is Padgett's tax basis in the land? $ 89,625 c. If Padgett sells the land several years later for $537,750, how much tax gain will Nova and Oscar report? Nova reports a $ gain and Oscar's gain is $ 89,625 .

Answer 1

Answer:Amount of Nova and Oscar's gain=$492,937.50

Step-by-step explanation:

a)According to Land recorded for § 704(b) book capital account purposes, Land is recorded at fair market value. With this, the Padgett properties should record the land at $358,500

b)From the question, it is given that the basis of land is $89,625. Therefore, the Padgett Properties LLC's tax basis in the land is $89,625.

c)Amount of Nova and Oscar's gain.

Fair market value of Land $358,500

Basis of land $89,625

total $ 448,125

but Gain = Selling price of land - Fair value of Land x interest in partnership profits and capital

= $537,750 - ($358,500+$89,625 )

=($537,750 - $448,125 ) x 50% =$44,812.50

Total gain $448,125 + $44,812.50 =$492,937.50