ExpertMedium1 markMultiple Choice
CPA · Question 50 · Area 4: Entity Taxation
A general partnership is formed. Partner A contributes cash of ,000 for a 50% interest. The partnership borrows ,000 from a bank (Recourse debt). What is Partner A's initial outside basis?
A general partnership is formed. Partner A contributes cash of ,000 for a 50% interest. The partnership borrows ,000 from a bank (Recourse debt). What is Partner A's initial outside basis?
Answer options:
A.
,000
B.
,000
C.
,000
D.
0
How to approach this question
Partnership Basis = Cash + Adjusted Basis of Property + Share of Liabilities. Recourse debt -> General Partners share. Nonrecourse debt -> Profit ratio share.
Full Answer
B.,000✓ Correct
A partner's basis includes their contribution plus their share of partnership liabilities. ,000 cash + (50% * ,000 debt) = ,000.
Common mistakes
Forgetting to add the share of liabilities to basis.
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