Module 6-1

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02-23-2017

Helen, a 55% partner in the ABC partnership, owns land (a capital asset) having a $20,000 basis and a $25,000 FMV. She plans to transfer the land to the ABC Partnership, which will subdivide the land and sell the lots. Discuss whether Helen should sell or contribute the land to the partnership.

0 A. Helen should contribute the property. ABC Partnership will hold the land as inventory for resale to customers and not as a capital asset. Because Helen owns more than 50% interest in the ABC Partnership, the sell of the land to the partnership will generate ordinary income instead of capital gains for Helen. If Helen instead contributes the land to the partnership, it will recognize no gain until it sells the lots.

0 B. Helen should sell the property. Because Helen owns more than a 50% interest in the ABC Partnership, the sale of the land to the partnership will generate no gains or losses for Helen or for the partnership.

0 C. Helen should contribute the propery. Because Helen owns more than 50% interest in the ABC Partnership , the sale of the land to the partnership will generate a capital gain for Helen. If Helen instead contributes the land to the partnership, it will recognize a gain immediately.

0 D. Helen should sell the property. ABC Partnership will hold the land as a capital asset. The sale of the land to the partnership will generate a capital gain immediately . No gain or loss will then be recognized upon sale of the lots to customers.