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Sean, Penelope, and Juan formed the SPJ partnership by each contributing assets with a basis and ...

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Sean, Penelope, and Juan formed the SPJ partnership by each contributing assets with a basis and ...

Sean, Penelope, and Juan formed the SPJ partnership by each contributing assets with a basis and fair market value of $200,000. In the following year, Penelope sold her one-third interest to Pedro for $225,000. At the time of the sale, the SPJ partnership had the following balance sheet:

   Basis   FMV
Cash   $200,000   $200,000
Land   $400,000   $475,000
   $600,000   $675,000

Shortly after Pedro became a partner, SPJ sold the land for $475,000. What are the tax consequences of the sale to Pedro and the partnership (1) assuming there is no Section 754 election in place, and (2) assuming the partnership has a valid Section 754 election?

Textbook

Prentice Hall's Federal Taxation 2014 Corporations, Partnerships, Estates & Trusts

Edition: 27^th

Authors: Anderson, Pope, Rupert

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