The following information pertains to property contributed by Gray on July 1, 2015, for 40% interest in the capital and profits of Kag & Gray, a partnership:

As of June 30,2015

Adjusted basis: $24,000

Fair market value: $30,000

After Grays contribution, Kag &Gray's capital totaled $150,000. What amount of gain was reportable in Gary's 201 return on the contribution of property to the partnership?

a. $0

b. $6,000

c. $30,000

d. $36,000

The amount of gain that was reportable in Gary's 201 return on the contribution of property to the partnership is:

a. $0

Explanation:

We need to determine the amount of gain the Gray will receive from the transaction.

Use the Fair market value to determine the value of his contribution

Value of Gray's contribution=$30,000

Total Kag and Gray contribution=$150,000

Determine the value of Gray's property interest as shown;

V=T*I

where;

V=Gray's share of Capital interest

T=total partnership capital

I=interest

This can also be written as;

Value of Capital interest=total capital*interest

where;

V=unknown

T=$150,000

I=40%=40/100=0.4

replacing;

V=0.4*150,000=$60,000

Gray's share of capital interest=$60,000

Gray's share of capital interest ($60,000) >Fair market value ($30,000)

It has to be noted that the non-recognition rule applies in this case even if the partnership capital interest exceeds the fair market value of the contributed property.

So the amount of gain that was reportable in Gary's 201 return on the contribution of property to the partnership is $0