Partner A contributes Land (Basis $60,000, FMV $100,000) to a partnership. Two years later, the partnership sells the land for $120,000. How is the $60,000 gain allocated?

Answer options:

50/50 to all partners.

$60,000 to Partner A.

$40,000 to Partner A; remaining $20,000 allocated according to profit ratios.

$0 to Partner A.

How to approach this question

Apply IRC §704(c). Pre-contribution gain ($100k - $60k = $40k) must be allocated to the contributing partner (A). The remaining gain ($120k - $100k = $20k) is shared normally.

Full Answer

C.$40,000 to Partner A; remaining $20,000 allocated according to profit ratios.✓ Correct

IRC §704(c). Built-in gain at contribution ($40,000) is allocated to Partner A. The excess gain ($20,000) is allocated to all partners.

Common mistakes

Allocating the entire gain based on profit ratios.

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