Facts: Greg, Alex, and Tom formed a general partnership in 2000 which they call Green Mountain Partners. Green Mountain Partners presently owns a bed and breakfast inn located in Quechee, Vermont. The property consists of a twenty-bedroom inn and spa complex, surrounded by twenty five acres of wooded property with walking and riding trails. Greg and Alex each hold a 30 percent capital and profits interest in the partnership, while Tom holds a 40 percent capital and profits interest.

Greg holds an adjacent 30-acre piece of undeveloped land which he purchased in 1985 for investment purposes for $350,000. The property presently has no mortgage or other encumbrances on it. Current fair market value of the property is approximately $2,100,000.

Greg, Alex, and Tom would like to subdivide Gregs adjacent property and build an active retirement community consisting of 80 single-family homes, a riding stable, indoor swimming pool and gym, plus a recreational center. They estimate that land development and building costs for each home will average about $275,000 each, and can be marketed for approximately $525,000 each.

Issue(s):

1. If Greg contributedthe land to the partnership, Green Mountain Partners would hold the land at what basis? Determine the character and estimate the amount of income/gain to Greg and his partners under this scenario.

2. If Greg soldthe land to the partnership, Green Mountain Partners would hold the land at what basis? Determine the character and estimate the amount of income/gain to Greg and his partners under this scenario.