Let's solve the problem step by step: ### **Given:** - **Simon:** Contributes nondepreciable property (basis: $15,000, FMV: $25,000). - **Heidi:** Contributes nondepreciable property (basis: $22,000, FMV: $41,000) **subject to $16,000 liability** (transferred to partnership). - **Sophia & Howie:** Each contribute $25,000 cash. - **Profits/losses shared equally.** --- ## **(a) What is the amount of Heidi’s basis for her partnership interest immediately after the partnership is formed?** **Step 1: Compute Heidi's initial basis in partnership interest:** - Adjusted basis of property contributed: **$22,000** - Less: Liability transferred to partnership (and assumed by others): **($16,000)** **Heidi's initial basis = $22,000 - $16,000 = $6,000** **Step 2: But Heidi is relieved of $16,000 liability. Since there are 4 partners, she is considered to still be responsible for her share (1/4) of it, so:** - Liability assumed by others: $16,000 × (3/4) = **$12,000** - Add back Heidi’s share of partnership liability: $16,000 × (1/4) = **$4,000** **Final Basis Calculation:** - Initial property basis: $22,000 - Less: Liability relieved: ($16,000) - Add: Heidi's share of partnership liability: **$4,000** **Heidi's basis = $22,000 - $16,000 + $4,000 = $10,000** --- ## **(b) How much is the partnership’s adjusted basis for the property contributed by Heidi?** **The partnership takes a carryover basis in property contributed by a partner = Heidi’s adjusted basis at contribution.** - Partnership’s basis in property = **$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 property basis to partnership: **$15,000** - Sale proceeds: **$23,000** **Realized gain = $23,000 - $15,000 = $8,000** **Allocation:** - Pre-contribution gain = FMV at contribution - basis = $25,000 - $15,000 = $10,000 Since property is sold below FMV at contribution ($23,000 < $25,000), only part of the gain is pre-contribution gain, the rest is post-contribution loss (because it was "worth" $25,000 day of contribution but sold for $23,000): - Pre-contribution gain: $25,000 - $15,000 = **$10,000** (allocated to Simon) - Post-contribution loss: $23,000 - $25,000 = **($2,000)** (allocated equally: -$500 each) **Recognized gain by partnership: $8,000** **Allocated to Simon:** - Pre-contribution gain: $10,000 - Less Simon's share of post-contribution loss: -$500 - **Net to Simon: $10,000 - $500 = $9,500** --- ## **(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 property basis to partnership: **$22,000** - Sale proceeds: **$49,000** **Realized gain = $49,000 - $22,000 = $27,000** - Pre-contribution gain: FMV at contribution - basis = $41,000 - $22,000 = **$19,000** (allocated to Heidi) - Post-contribution gain: $49,000 - $41,000 = **$8,000** (allocated equally: $2,000 each) **Recognized gain by partnership: $27,000** **Allocated to Heidi:** - Pre-contribution gain: $19,000 - Plus her share of post-contribution gain: $2,000 - **Net to Heidi: $21,000** --- ## **Summary Table** | Question | Calculation | Final Answer | |----------|-------------|--------------| | (a) | $22,000 - $16,000 + $4,000 | **$10,000** | | (b) | Carryover basis | **$22,000** | | (c) | $23,000 - $15,000 = $8,000 gain. <br> Simon: $10,000 (pre-contribution gain) - $500 (post-contribution loss) | **Partnership: $8,000 gain; Simon: $9,500 gain** | | (d) | $49,000 - $22,000 = $27,000 gain. <br> Heidi: $19,000 (pre-contribution) + $2,000 (post-contribution) | **Partnership: $27,000 gain; Heidi: $21,000 gain** | If you need any part explained in more detail, let me know!