Unrelated individuals Hannah, Isabella, and Gabriella are thinking about forming an equal partnership. Hannah and Isabella would each contribute cash of $100,000, and Gabriella would contribute land held for investment for a one-third interest in capital and profits. The land has a fair market value of $190,000 and an adjusted basis of $40,000. It is subject to a mortgage of $90,000.
1. What are the tax consequences (gain recognition on the formation of the partnership) to Hannah, Isabella and Gabriella?
2. What is each partner’s interest basis?
3. What basis does the partnership take in the land?
4. How would a subsequent sale of the land by the partnership for $220,000 be treated?