ExpertHard1 markMultiple Choice
CPA · Question 35 · Area V: Entity Taxation
Partner A contributes land with a basis of $40,000 and FMV of $100,000 to a partnership for a 50% interest. The land is subject to a $20,000 mortgage which the partnership assumes. What is Partner A's initial outside basis?
Partner A contributes land with a basis of $40,000 and FMV of $100,000 to a partnership for a 50% interest. The land is subject to a $20,000 mortgage which the partnership assumes. What is Partner A's initial outside basis?
Answer options:
A.
$40,000
B.
$20,000
C.
$30,000
D.
$100,000
How to approach this question
Formula: Adjusted Basis of Property - Liability Assumed by Others + Share of Liabilities. $40k - $20k (total debt) + $10k (50% share) = $30k.
Full Answer
C.$30,000✓ Correct
Initial Basis = Basis of contributed property ($40,000) less liability assumed by partnership ($20,000) plus partner's share of partnership liabilities (50% of $20,000 = $10,000). $40,000 - $20,000 + $10,000 = $30,000.
Common mistakes
Forgetting to add back the partner's share of the liability.
Practice the full CPA REG Practice Exam 3
72 questions · hints · full answers · grading
More questions from this exam
Q01A CPA is preparing an original tax return for a client who is claiming a refund based on a positi...HardQ02A practitioner is representing a taxpayer in an IRS examination. The taxpayer has a 25% ownership...HardQ03A tax return preparer willfully attempts to understate the tax liability on a client's return by ...HardQ04Which of the following scenarios would most likely result in the assessment of a penalty for fail...HardQ05Regarding the disciplinary authority of State Boards of Accountancy, which of the following state...Hard