Ali, a Contractor, Builds an Office Building for a Construction

Multiple Choice

Ali, a contractor, builds an office building for a construction partnership in exchange for a capital and profits interest in the partnership worth $500,000. Which of the following statements is correct?

A) Ali recognizes $500,000 of ordinary income and the partnership can deduct $500,000 in the current year.
B) Ali recognizes no income and the partnership can deduct nothing in the current year.
C) Ali recognizes $500,000 ordinary income and the partnership deducts the $500,000 over the building's MACRS recovery period as a depreciation expense.
D) Ali recognizes ordinary income in the current year in an amount equal to the depreciation deduction the partnership claims this year for the $500,000 capitalized amount.