Sally is a 25% partner in the STUV partnership. She has a tax basis in her partnership interest of $300,000. Sally also owns some land and a small building that she would like to sell to the partnership. The property has a fair market value of $500,000. Sally purchased the building for $400,000, and after taking MACRS deductions, her tax basis in the building is $350,000.

Part 1

If Sally sells the property to the partnership, what are the tax consequences to Sally?

Sallys lawyer, who has a basic understanding of tax law, suggests that Sally should contribute the building to the partnership, and subsequently take a distribution of $500,000 from the partnership. What are the tax consequences of this transaction?