Jacob has operated a small farm as a sole proprietor for a number of years. Sunbelt Farms, a large local farm operating as a general partnership, has contacted Jacob to arrange a deal whereby Jacob will contribute the farm acreage to the partnership in exchange of a 10% partnership interest valued at $1,500,000 and $500,000 cash. Jacob’s adjusted basis in his acreage is $200,000.
a. What gain, if any, does Jacob recognize on his transaction with Sunbelt?
b. What is Jacob’s outside basis in his partnership interest?
c. What is Sunbelt’s basis in the land contributed by Jacob?