Partner’s Basis . Nikki and Nancy form N & N partnership. Nikki contributes $40,
ID: 2456121 • Letter: P
Question
Partner’s Basis.
Nikki and Nancy form N & N partnership. Nikki contributes $40,000 cash and a building worth $70,000 ($58,000 adjusted basis) in exchange for a 50% interest in N & N. Nancy contributes $10,000 and land worth $100,000 (basis $120,000) in exchange for a 50% interest in N & N.
How much gain or loss do Nikki, Nancy and N & N recognized from the transfer?
What is Nikki’s basis in her partnership interest?
What is Nancy’s basis in her partnership interest?
What is N & N’s basis in the assets it acquired on the transfer?
Explanation / Answer
Section 721 provides that no gain or loss is recognized by a partnership or a contributing partner who transfers property to a partnership solely in exchange for a partnership interest. Therefore, no gain or loss shall be recognized by Nikki, Nancy and N&N.
The partner’s basis in the partnership interest will equal the basis of the property contributed, and the property will have the same tax basis to the partnership.
Therefore,
Nikki’s basis in her partnership interest will be $98,000 ($40,000 cash + $58,000 building).
Nancy’s basis in her partnership interest will be $110,000 ($10,000 cash + $100,000 land).
N&N’s basis in the assets it acquired on transfer will be $208,000 ($98,000 + $110,000).