Question 1

Partner A contributed property with a basis of $10,000 and a fair market value (FMV) of $20,000 to the AB Partnership in exchange for a 50% interest. The property was subject to a $4,000 mortgage which the partnership assumed. What is A's initial outside basis in the partnership interest?

Accepted Answer

Formula: Basis of property contributed - Liability assumed by others + Share of liability retained.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Forgetting to add back the partner's share of the liability they just contributed.

Partner A contributed property with a basis of $10,000 and a fair market value (FMV) of $20,000 to the AB Partnership in exchange for a 50% interest. The property was subject to a $4,000 mortgage which the partnership assumed. What is A's initial outside basis in the partnership interest?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 2

More questions from this exam