Respuesta :
Answer:
a. Harry will recognize $0.
b. Sally will also recognize $0.
c. By selling the equipment to an unrelated party and by contributing $150,000 to the partnership instead.
d. Harry's tax basis in his partnership interest is $130,000.
e. Sally's tax basis in her partnership interest is $200,000
f. Evergreen's tax basis in its assets is $330,000
g. Total assets = Total Capital = $330,000
Explanation:
Note: The data in the question are merged together and they are first sorted before answering the questions as follows:
Harry: Basis Fair Market Value
Cash $30,000 $30,000
Land 100,000 120,000
Totals $130,000 $150,000
Sally:
Equipment used in a business 200,000 150,000
Totals $200,000 $150,000
The explanations to the answers are now provided as follows:
a. How much gain or loss will Harry recognize on the contribution?
Harry will recognize $0 because he did not have any debt relief.
The reason is that gain on property contributed by a partner to a partnership will be recognized only when the debt relief they seemed to have received is greater than their basis in the partnership before the distribution.
Since Harry did not have any debt relief, he will therefore recognize $0.
b. How much gain or loss will Sally recognize on the contribution?
Sally will also recognize $0.
It is possible that when partners contributes property to a partnership, loss may not be recognized even if they have debt relief. Therefore, it not in all cases that loss are recognized.
c. How could the transaction be structured a different way to get a better result for Sally?
This transaction could be structured differently if Sally decides to sell the equipment to an unrelated party and then make a cash contribution of $150,000 to the partnership instead of contributing the equipment. As a result of this, it will be possible for Sally to recognize the built-in loss on the equipment by selling it.
d. What is Harry's tax basis in his partnership interest?
The basis of Harry in his partnership interest can be obtained by adding his contribution of cash and land to the partnership as follows:
Harry's tax basis = $30,000 + $100,000 = $130,000.
Therefore, Harry's tax basis in his partnership interest is $130,000.
e. What is Sally's tax basis in her partnership interest?
This is simply the amount of her contribution of $200,000 basis in the equipment.
Therefore, Sally's tax basis in her partnership interest is $200,000.
f. What is Evergreen's tax basis in its assets?
This can be calculated by adding the Harry's basis in cash and land of $30,000 and $100,000 respectively together with Sally's basis in equipment of $200,000 as follows:
Evergreen's tax basis in its assets = $30,000 + $100,000 + $200,000 = $330,000
Therefore, Evergreen's tax basis in its assets is $330,000.
e. Prepare a tax basis balance sheet for the Evergreen partnership showing the tax basis capital accounts for the partners.
This can be prepared as follows:
Evergreen partnership
Tax Basis Balance Sheet
Particulars Amount ($)
Assets:
Cash 30,000
Equipment 200,000
Land 100,000
Total Assets 330,000
Capital:
Harry's Capital (w.1) 130,000
Sally's Capital (w.2) 200,000
Total Capital 330,000
Workings:
w.1: Harry's Capital = Cash contributed + Land contributed = $30,000 + $100,000 = $130,000
w.2: Sally's Capital = Equipment contributed = $200,000
