Michael contributes land with a value of $120,000 and a basis of $80,000 to the MNO Partnership in exchange for a 1/4 interest.Soon thereafter,the partnership sells the land for $140,000.Of the gain on the land sale,$15,000 is allocated to Michael.

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The total gain on the land sale is $60,000 [$140,000 (selling price)- $80,000 (substituted basis)].The $40,000 precontribution gain [$120,000 (value at contribution date)- $80,000 (basis)] is allocated to Michael.In addition,Michael is allocated 1/4,or $5,000 of the post-contribution gain ($140,000 - $120,000 FMV at contribution date).Total gain allocated to Michael is $45,000.

Michael Contributes Land with a Value of $120,000 and a Basis