What is the amount and nature of the gain or loss

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L and M form the LM General Partnership. Each partner has an equal 1/2 interest in all income, gains, expenses and losses. Upon formation, L transfers land with a fair market value of $100,000 and a basis of $50,000 to the partnership. The land is encumbered with a recourse mortgage of $80,000 which the partnership assumes. M contributes $20,000.

L had purchased the land three years ago and held it as an investment. The recourse mortgage was incurred by L a few days before the contribution of the land to the partnership. The proceeds from the mortgage are used for a trip to Las Vegas. All the money is spent either on the trip or at the slot machines.

1. Could L recognize any gain or loss upon the contribution of the land to the partnership? Explain your answer.

2. Assuming L would recognize a gain or loss upon contribution of the land, what is the amount and nature of the gain or loss?

3. Assuming L would recognize a gain or loss upon contribution of the land , what is her basis for her partnership interest upon formation?

4. Assuming L would recognize a gain or loss upon contribution of the land, what would be the basis of the land to the partnership upon formation?

Reference no: EM13705808

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