Section 721

Question 1

What does Section 721 protect partners and the partnership from?

Answer 1

Recognition of gain or loss on the transfer of property to a partnership in exchange for an interest in the partnership

Question 2

What constitutes “property” for purposes of Section 721?

Answer 2

Personal/real property, money, installment obligations, goodwill, accounts receivable of a cash basis taxpayer. Does not include services.

Question 3

Does the contribution of depreciable property trigger recapture of depreciation under Section 1245?

Answer 3

No, Section 1245(b)(3) contains a list of internal exceptions including of transactions described in section 721. However, the contributed property remains subject to recapture upon later disposition by the partnership and the partnership’ s potential recapture gain includes the depreciation taken by the contributing partner.