Question

When Padgett Properties LLC, was formed, Nova contributed land (value of $367,500 and basis of $91,875) and $183,750 cash, and Oscar contributed cash of $551,250. 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 $551,250, Nova reports a $ gain and Oscar’s gain is $.

Answer 1

Answer:

a)$367,500  b)$91,875 c)Nova will report a loss of $25* and Oscar's gain will be $91850.

Explanation:

a ) Land will be recorded for section 704(b) book capital purposes = Fair market value = $367,500

Padgett also record the land at $367,500

 

b)Padgett's tax basis will will bwe same as that of Nova, i.e., $91,875

c)If Padgett sells the land several years later the built in basis of $91,875 will be taxed to Nova only.

so the gain of (551,200-367,500) 183700 divided in two equal parts of 91850 each.

but Nova will report a loss of $25* and Oscar's gain will be $91850.

* The built in tax inherent in contributed property will eventually be taxed to the contributor.