Juan contributes three parcels of property to the JKL Partne

Juan contributes three parcels of property to the JKL Partnership in exchange for a 40% interest in the partnership. The properties were as follows:
      
                              FMV                 Basis
Property A            $120,000         $70,000
Property B             $180,000         $160,000
Property C             $100,000         $200,000

If Property A is later sold for $140,000, how much gain will Juan recognize?

a. $70,000

b. $50,000

c. $58,000

d. $20,000

Solution

Correct asnwer is option C.$58,000

Basis of Property A to JKL= $70,000

Sale price= $140,000,

So gain to JKL=140,000-70,000=70,000

$50,000 of that gain ($120,000 - $70,000) ie precontribution gain) will be allocated to Juan, and the remaining $20,000 will be allocated to all of the partners based on their profit sharing ratios.

So Juan will be allocated $8,000 ($20,000 X .4) of that gain.

Total gain allocated to Juan would be $50,000 + $8,000 = $58,000.