ExpertMedium1 markMultiple Choice
CPA · Question 18 · Area II: Entity Tax Compliance
Partner A contributes land to a partnership in exchange for a 50% interest. The land has a basis of $80,000 and an FMV of $100,000. The partnership assumes a $20,000 recourse mortgage on the land. Partner A bears 50% of the economic risk of loss for the debt. What is Partner A's initial basis in the partnership interest?
Partner A contributes land to a partnership in exchange for a 50% interest. The land has a basis of $80,000 and an FMV of $100,000. The partnership assumes a $20,000 recourse mortgage on the land. Partner A bears 50% of the economic risk of loss for the debt. What is Partner A's initial basis in the partnership interest?
Answer options:
A.
$80,000
B.
$60,000
C.
$70,000
D.
$90,000
How to approach this question
Formula: Basis of contributed asset - Debt assumed by Partnership + Partner's share of that debt. <br/>$80k - $20k + (50% * $20k) = $70k.
Full Answer
C.$70,000✓ Correct
Under IRC §722 and §752, the partner's basis is the adjusted basis of property contributed ($80,000), decreased by the portion of liability assumed by the partnership ($20,000), and increased by the partner's share of partnership liabilities ($10,000). Net result: $80k - $20k + $10k = $70k.
Common mistakes
Forgetting to add back the partner's share of the liability.
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