Let's solve each part step-by-step: --- ### **a. What is the amount of Heidi’s basis for her partnership interest immediately after the partnership is formed?** **Heidi contributes:** - Property with adjusted basis: **$22,000** - The property is subject to $16,000 liability, which is transferred to the partnership. **Step-by-step:** - Heidi’s initial basis = Adjusted basis of property contributed = **$22,000** - Less: Liability transferred to the partnership (Heidi is relieved) = **$16,000** - However, partnership liabilities are allocated among all partners equally (since profits/losses are shared equally). So, Heidi is deemed to assume 1/4 of the liability: $16,000 × 1/4 = **$4,000** **Heidi’s net decrease in basis due to liability:** Liability relief: $16,000 Plus: her share of partnership liability: $4,000 Net liability relief: $16,000 - $4,000 = **$12,000** **Final basis calculation:** Initial basis: $22,000 Less net liability relief: $12,000 = **$10,000** **Answer (a):** **Heidi’s basis for her partnership interest is $10,000.** --- ### **b. How much is the partnership’s adjusted basis for the property contributed by Heidi?** **Rule:** Partnership’s basis = Carryover basis from partner (not FMV). **Heidi’s adjusted basis in property:** $22,000 **Answer (b):** **Partnership’s adjusted basis for Heidi’s contributed property is $22,000.** --- ### **c. If the partnership sells the property contributed by Simon for $23,000, how much is the gain or loss recognized by the partnership? How much of the recognized gain or loss is allocated to Simon?** **Simon’s contributed property:** - Adjusted basis: $15,000 - FMV: $25,000 - Sold for: $23,000 **Partnership’s basis = Carryover basis = $15,000** **Gain/loss on sale:** Amount realized: $23,000 Less: Adjusted basis: $15,000 = **$8,000 gain** **Pre-contribution gain is allocated to the contributing partner (Section 704(c)):** - Pre-contribution gain: FMV at contribution - basis = $25,000 - $15,000 = **$10,000** - Actual gain recognized: $8,000 (since sold for less than FMV at contribution, all $8,000 is pre-contribution gain) - All $8,000 is allocated to Simon. **Answer (c):** **The partnership recognizes an $8,000 gain. All $8,000 of the gain is allocated to Simon.** --- ### **d. If the partnership sells the property contributed by Heidi for $49,000, how much is the gain or loss recognized by the partnership? How much of the recognized gain or loss is allocated to Heidi?** **Heidi’s contributed property:** - Adjusted basis: $22,000 - FMV at contribution: $41,000 - Sold for: $49,000 **Partnership’s basis: $22,000** **Gain on sale:** Amount realized: $49,000 Less: Adjusted basis: $22,000 = **$27,000 gain** **Pre-contribution gain (Section 704(c)):** - FMV at contribution - basis = $41,000 - $22,000 = **$19,000** - Sale price exceeds FMV at contribution by: $49,000 - $41,000 = **$8,000** (post-contribution gain) **Allocation:** - Pre-contribution gain ($19,000) is allocated to Heidi. - Post-contribution gain ($8,000) is allocated equally among all four partners = $8,000/4 = **$2,000 each**. **Total gain allocated to Heidi:** Pre-contribution gain: $19,000 Plus 1/4 of post-contribution gain: $2,000 = **$21,000** **Answer (d):** **The partnership recognizes a $27,000 gain. $21,000 of the gain is allocated to Heidi.** --- ## **Summary Table** | Part | Answer | |------|--------| | (a) | Heidi’s basis = $10,000 | | (b) | Partnership’s basis in Heidi's property = $22,000 | | (c) | Gain recognized = $8,000, all allocated to Simon | | (d) | Gain recognized = $27,000, $21,000 allocated to Heidi | Let me know if you want the journal entries or further explanation!