H D formed corp H transferred a patent right with a FMV 250

H & D formed corp. H transferred a patent right with  a FMV 25000 & 0 adjusted basis. D transferred building FMV 100000 & adjusted basis of 75000.H received 250 shares & D received 750 shares out of 1000. as a result of this transaction D should report what type of gain.

Solution

The section 704(c) will apl=ply in above scenerio. The section says that the partnership must allocate income.gain/loss with respect to the property/asset contributed by the partner and it takes inro account the difference between adjusted basis and fair market value. So when FMV> adjusted basis there is built in gain and in case of FMV<adjsuted basis there is built in liss.

In this case there is built in gain of $25000 (100000-75000) as the result of D transaction