Patrick purchased a one-third interest in the PPP partnership for $600,000. At the time of the purchase, the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000. This year, PPP sells the land for $1,800,000. What is Patrick's recognized share of the gain on the sale of the land?
A) $0
B) $100,000
C) $300,000
D) none of the above
A) $0
$1,800,000 - 1,500,000 = 300,000 gain. Patrick's share of the gain is $100,000, which is offset by the $100,000 754 adjustment. The 754 adjustment is 600,000 purchase price - (1,500,000/3) = 100,000.
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