Example…….
Partner 1 contributed cash
Partner 2 contributed stuff
Both count toward their basis in the partnership. The stuff is valued at the Fair Market Value.
That being said…
Partner 2 has BASIS in the stuff contributed to the partnership BUT that basis may be less than the Fair Market Value. Nothing taxable yet.
Example: You and I are going to sell cars. I contribute my 65 GTO Convertible (I wish). My cost in it years ago is $10k but it is worth $80k.
If that stuff is sold within 7 years by the partnership, a calculation is made as if the stuff is sold with the partner’s individual basis in the stuff even though the partners agreed the basis contributed was Fair Market Value.
SUMMARY
Gain on Contributed stuff sold within 7 years must be calculated at the partner’s individual basis even though that basis is not reflected on partnership books.
COMMENT
It makes sense. If partner 2 sold the stuff prior to the partnership being in business, he would have a gain. If he puts it in the partnership at FMV, then the partnership immediately sells it, there would be no gain.
Lonnie