What is Section 704(c) allocation?
In short
Section 704(c) requires that built-in gain or loss on property a partner contributes to a partnership be allocated to that partner when the property is sold or depreciated, so the gain or loss isn't shifted to other partners.
Key takeaways
- Only appreciation after the contribution is shared under the partnership agreement.
- It also affects how depreciation on contributed property is allocated.
- Distributing contributed property to another partner within seven years can trigger the gain.
Where it's tested
TCP: Partnership Compliance & Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A partner contributes land with a basis of $40,000 and a fair market value of $100,000. Three years later the partnership sells the land for $110,000. How is the gain allocated?