Question

When property is contributed to a partnership in exchange for a capital and profits interest, when does the partner’s holding period begin for the partnership interest? Group of answer choices The day the property was contributed. The day the partnership interest was acquired. Either (or both) c. and d. may be true, depending upon the types of property contributed. The day after the contribution date. The day the contributed property was purchased.

Answer 1

Answer:

The day the property was contributed.

Explanation:

A holding period refers to the time period an asset or investment is held by a business or an investor, or the period between when the asset is bought and when it is sold.

The character or type of an asset contributed to a partnership in exchange for a capital and profits interest determines the beginning of the partner’s holding period as follows:

1. If the capital asset or property contributed by the partner has been used in a trade or business just before it is contributed to the partnership, the holding period of the partner for the partnership interest will include the holding period of the capital asset or property contributed.

2. If the capital asset or property contributed by the partner is exchanged for money, capital or other property, the beginning of the holding period of the partner in the day of acquisition of the interest, i.e., the day the property was contributed.

Since the question states that the property is contributed to a partnership in exchange for a capital and profits interest, rule number 2 above therefore applies. That is, the partner’s holding period begin for the partnership interest the day the property was contributed.