Question

Sue and Andrew form SA General Partnership. Each person receives an equal interest in the newly created partnership. Sue contributes 1000 of cash and land with a FMV of 50000. Her basis in the land is 10000. Andrew contributes equipment with a FMV of 51000. His basis in the equipment is 35000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

Answer 1

Answer: $0

Explanation:

Gains are not recognized when assets are transferred. They are only recognised when assets are disposed of. In the above scenario, Sue and Andrew TRANSFERRED the assets to the company and so SA General Partnership cannot recognize a gain until the assets are disposed of.

It is worthy of note that a Carryover basis transaction has taken place in this scenario. This means that the basis in the assets of Sue and Andrew have been transferred to the SA General Partnership.