On January 1, Julie, Kay, and Susan form a partnership. The contributions of the three individuals are listed below. Julie received a 30% partnership interest, Kay received a 60% partnership interest, and Susan received a 10% partnership interest. They share the economic risk of loss from recourse liabilities according to their partnership interests.

Kay has claimed $15,000 of straight-line MACRS depreciation on the building. The land and building are subject to a $54,000 mortgage, of which $18,000 is allocable to the land and $36,000 is allocable to the building. The partnership assumes the mortgage. Susan is an attorney, and the services she contributes are the drawing-up of all partnership agreements.
a. What amount and character of gain, loss, or income must each partner recognize on the formation of the partnership?
b. What is each partner€™s basis in her partnership interest?
c. What is the partnership€™s basis in each of its assets?
d. What is the partnership€™s initial book value of each asset?
e. To raise some immediate cash after the formation, the partnership decides to sell the land and building to a third party and lease it back. The buyer pays $40,000 cash for the land and $80,000 cash for the building in addition to assuming the $54,000 mortgage. Assume the partnership claim no additional depreciation on the building before the sale. What is each partner€™s distributive share of the gains, and what is the character of the gains?

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Individual Asset Basis to Partner FMV Julie Accounts receivable S-0- S 60,000 Kay Land 30,000 58,000 Building 45,000 116,000 Susan Services 20,000