When Padgett Properties LLC, was formed, Nova contributed land (value of $367,500 and basis of $91,875) and $183,750 cash, and Oscar contributed cash of $551,250. Both partners received a 50% interest in partnership profits and capital.

a. How is the land recorded for § 704 (b) book capital account purposes?

For § 704 (b) book capital account purposes, Padgett records the land at $.

b. What is Padgett's tax basis in the land?

$

c. If Padgett sells the land several years later for $551,250, Nova reports a $ gain and Oscar's gain is $.

a) $367,500 b) $91,875 c) Nova will report a loss of $25 * and Oscar's gain will be $91850.

Explanation:

a) Land will be recorded for section 704 (b) book capital purposes = Fair market value = $367,500

Padgett also record the land at $367,500

b) Padgett's tax basis will will bwe same as that of Nova, i. e., $91,875

c) If Padgett sells the land several years later the built in basis of $91,875 will be taxed to Nova only.

so the gain of (551,200-367,500) 183700 divided in two equal parts of 91850 each.

but Nova will report a loss of $25 * and Oscar's gain will be $91850.

* The built in tax inherent in contributed property will eventually be taxed to the contributor.