John, Aiden, and Ben form the JAB equal, cash method, general partnership.
John contributes equipment held for 15 months with a value of $250,000 and an adjusted basis of $175,000. John paid $200,000 for the property and has claimed $25,000 of depreciation. John also contributes $150,000 cash.
Aiden contributes nondepreciable property purchased 3 years ago for $475,000 for investment purposes. The land has a value of $400,000. The partnership holds the property as inventory.
Ben contributes nondepreciable property that has a value of $400,000 that he purchased 8 months ago for $350,000. Ben is a dealer in the property purchased (it is inventory to him), but the property is investment property as to the partnership.
A: Assume the property contributed by Ben is sold in year 4 for $450,000. What is the amount of book and tax gain or loss on the sale, how is the book and tax gain allocated among the partners (include in your answer the character of any tax gain), and what is the impact on each partner's capital account and basis (what is each partner's capital account and basis after the transaction)? Prepare a balance sheet reflecting the sale transaction.
B: Assume the property contributed by Aiden is sold in year 3 for $350,000. What is the amount of book and tax gain or loss on the sale, how is the book and tax gain allocated among the partners (include in your answer the character of any tax gain), and what is the impact on each partner's capital account and basis (what is each partner's capital account and basis after the transaction)? Prepare a balance sheet reflecting the sale transaction.