[jeff]

I’ve had a few requests for April/May Study Groups…March will be here before you know it.

In order to take an early April exam, you should begin studying…now. 🙂

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[TargetCPA]

I don't understand with the Wiley explanation. Can anyone has explain this answer?

The following information pertains to Carr’s admission to the Smith & Jones partnership on July 1, 2012:

• Carr’s contribution of capital: 800 shares of Ed Corp. stock bought in 1999 for $30,000; fair market value $150,000 on July 1, 2012.

• Carr’s interest in capital and profits of Smith & Jones: 25%.

• Fair market value of net assets of Smith & Jones on July 1, 2012, after Carr’s admission: $600,000.

Carr’s gain in 2012 on the exchange of the Ed Corp. stock for Carr’s partnership interest was

a. $120,000 ordinary income.

b. $120,000 long-term capital gain.

c. $120,000 Section 1231 gain.

d. $0.

Answer: D

Wiley explanation:

The requirement is to determine the amount of gain recognized on the exchange of stock for a partnership interest.

Generally no gain or loss is recognized on the transfer of property to a partnership in exchange for a partnership interest.

Since Carr’s gain is not recognized, there will be a carryover basis of $30,000 for the stock to the partnership, and Carr will have a $30,000 basis for the 25% partnership interest received.

[CPA soon]

There is no gain for contributions to the partnership..not sure what part of the question is confusing you.. can you be more detailed?

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[TargetCPA]

Generally, no gain is recognized when appreciated property is transferred to a partnership in exchange for a partnership interest.

However, gain will be recognized if the transferred property is encumbered by a mortgage. But in this case, Why do they take $30,000 instead of FMV for carryover basis.

[CPA soon]

@Targetcpa well even when you have a mortgage you wouldn't recognize any gain unless the contributor's liability on the loan is decreased by an amount exceeding his basis. Think of it this way, any taxable event=Fair market value, any non-taxable event=Net book value. Now ask yourself, is contributing property to the partnership a taxable event? No, therefore use NBV

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[TargetCPA]

@ CPA Soon, Nice explanation for not considering FMV when property contributing to the p/ship.

Quote: “when you have a mortgage you wouldn't recognize any gain unless the contributor's liability on the loan is decreased by an amount exceeding his basis”

For example, Partner's adjusted basis = $6000; Mortgage = $2000; Contribution of an asset = 20%; FMV of the property = $10,000

Calc:

Initial outside basis + partner's % of p/s liabilities – Liabilities contributed to p/s = Net outside basis

$6,000 + (20% of $2,000) – $2,000 = $4,400 (No gain recognized)

Is my understanding right as per the above example?

[CPA soon]

$6,000 – (20% of $2000)=$5,600 is the basis

If the mortgage was $50,000 and the partnership assumed the whole liability, then 20% of 50k is $10k liability released, so if the basis of the partner is less than 10K, he may recognize a gain then.

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[TargetCPA]

Got it!!!

Thanks CPA soon!!! When are you going to take REG in april?

[CPA soon]

Aghhhh 4/12..gotta cram this week..

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[Anonymous]

I'm loving the explinations guys. I am taking REG on 5/24 and reading through this periodically helps challenge me to figure out how to explain WHY the answer is what it is.

@CPA soon – about your explination for FMV vs NBV… I studied that section and could NOT get any of the MCQ right and kept getty hung up on that and then I watched the yaeger video on it and Phil summed it up that way and it was the biggest light bulb moment! I was starting to get mad at myself for not understanding it, but that one detail makes a BIG difference 🙂

[Only Reg Left]

I just want to add to TargetCPA's question that Carr has a built in gain of $120,000 as LTCG, so when the partnership sells the stock for over $150,000 (let's say $180,000), Carr reports $127,500 (120,000 B-i-G + 25% of 30,000) and the other partners only report a gain of 22,500.

Maybe that's why you're confused. The partnership's basis in the stock is still Carr's NBV of $30,000, but $120,000 of the gain is specifically allocated to him.

Now if the LP sold the stock for less than $150,000 (let's use $140,000 as an example), there is a total gain of $110,000.

The LP has a tax gain of $110,00, but a book loss of $10,000. You can't allocate $120,000 of gain to Carr and a loss of $10,000 to the other partners. The ceiling is a $110,000 gain. This simply results in a disparity between the tax basis in the LP's interest and his capital account. Basically treat the $10,000 loss as a liability.

I apologize if I confused you even more.

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[TargetCPA]

@ Only Reg Left: Your explanation is awesome. Initially I was confused with Partner's Basis & his/her Gain/Loss.

After clarifying with CPA Soon, I recognized my misunderstanding of these concepts then covered rest of the P/ship MCQs. Now I figured it out well with these simple and confusing topics.

Thank you!!!

[joecolpi]

I am using BECKER and just finished R4, should i do R1-R4 again before i hit R5-R8 ? what u guys think

AUD 72, 78
BEC 71(10/13), 80(2/27/14)
FAR 65(12/4/13),78 (1/2014)
reg 89 (5/30/14)

open the book every day!

[Only Reg Left]

I think it depends on your HW score and how well you understand the material. I was scoring in the 90s for each section so decided to keep going. Oddly enough, when I went back for my second review, I was scoring in the mid 80s. So regardless if you review it again nor or later, you're going to forget a lot of the minute details.

I just finished my second review and feel burned out. I might take a day or two off before going over it again. Then I should have a week to do a final review. I am probably overstudying, but I really want to remove A71 from my bookmarks.

AUD - 68, 77
REG - 84* (Expired)
FAR - 83
BEC - 74, 74, 72, 72, 84

[joecolpi]

thx @Only Reg Left there is no such thing as overstudying…lets get it

AUD 72, 78
BEC 71(10/13), 80(2/27/14)
FAR 65(12/4/13),78 (1/2014)
reg 89 (5/30/14)

open the book every day!

[golfball7773]

^marginal utility does not apply here?

FAR: 63, 55, 62
REG: 65, 77*
AUD: Fail, 64, 71
BEC: 72, 74, 81

*expired

[Author]

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