LO. 4, 7 The RB Partnership was formed to acquire land and subdivide it as residential housing lots. On March 1, 2010, Rachel contributed land valued at $500,000 to the partnership, in exchange for a 50% interest in RB. She had purchased the land in 2002 for $360,000 and held it for investment purposes ( capital asset). The partnership holds the land as inventory.

On the same date, Barry contributed land valued at $500,000 that he had purchased in 2003 for $600,000. He became a 50% owner. Barry is a real estate developer, but this land was held personally for investment purposes. The partnership holds this land as inventory.

In 2011, the partnership sells the land contributed by Rachel for $530,000. In 2012, the partnership sells the real estate contributed by Barry for $480,000.

What is the amount of gain or loss recognized on the sale of the land contributed by Rachel? What is the character of this gain or loss?

What is the amount of gain or loss recognized on the sale of the land contributed by Barry? What is the character of this gain or loss?

Q6: LO. 5 On July 1 of the current year, the R & R Partnership was formed to operate a bed and breakfast inn. The partnership paid $3,000 in legal fees for drafting the partnership agreement and $5,000 for accounting fees related to organizing the entity. It also paid $10,000 in syndication costs to locate and secure investments from limited partners. In addition, before opening the inn for business, the entity paid $15,500 for advertising and $36,000 in costs related to an open house just before the grand opening of the property. The partnership opened the inn for business on October 1.

How are these expenses classified?

How much may the partnership deduct in its initial year of operations?

How are costs treated that are not deducted currently?

Q7: LO. 4, 7 Phoebe and Parker are equal partners in the Phoenix Partnership. They are real estate investors who formed the partnership several years ago with equal cash contributions. Phoenix then purchased a piece of land. On January 1 of the current year, to acquire a one- third interest in the entity, Reece contributed to the partnership some land she had held for investment.

Reece purchased the land five years ago for $75,000; its FMV at the contribution date was $90,000. No special allocation agreements were in effect before or after Reece was admitted to the partnership. The Phoenix Partnership holds all land for investment.

Immediately before Reeces property contribution, the balance sheet of the Phoenix Partnership was as follows:

Basis	FMV
Land $30,000	$180,000
Phoebe, capital 15,000	$ 90,000
Parker, capital 15,000	90,000

At the contribution date, what is Reeces basis in her interest in the Phoenix Partnership?

On June 30 of the current year, the partnership sold the land contributed by Reece for $90,000. How much is the recognized gain or loss, and how is it allocated among the partners?