Choice "C" is correct. $0.Rule: There is no gain or loss recognized when a partner contributes property to a partnership in exchange for a partnership interest. Instead, the basis of the property contributed carries over and becomes the partnership's basis in the property. Likewise, the basis of the property contributed net of any related loans assumed by the other partners, becomes the new partner's basis in his partnership interest.
FMV of partner's interest received (25% × 600,000) | $150,000 |
Basis in property surrendered (stock acquired in Year 2) | 30,000 |
Long term capital gain realized | $120,000 |
Long term capital gain recognized | $0 |
When the stock is later sold by the partnership, any gain recognition to the extent of the above unrecognized gain would be specifically allocated to the partner who contributed the property to the partnership.
