ExpertMedium1 markMultiple Choice
CPA · Question 35 · Area II: Entity Tax Compliance
A partner contributes property (Basis $30,000, FMV $100,000) subject to a $40,000 recourse liability to a partnership for a 50% interest. The other 50% partner contributes $60,000 cash. What is the contributing partner's basis in the partnership interest immediately after formation?
A partner contributes property (Basis $30,000, FMV $100,000) subject to a $40,000 recourse liability to a partnership for a 50% interest. The other 50% partner contributes $60,000 cash. What is the contributing partner's basis in the partnership interest immediately after formation?
Answer options:
A.
$30,000
B.
$10,000
C.
$0
D.
$50,000
How to approach this question
Start Basis ($30,000). Less: Debt Assumed by Partnership ($40,000). Plus: Partner's Share of Debt ($40,000 * 50% = $20,000). Net Basis = $30k - $40k + $20k = $10,000.
Full Answer
B.$10,000✓ Correct
IRC §722, §752. Basis of contributed property ($30,000) minus net debt relief. The partner is relieved of $40,000 debt but assumes $20,000 (50%) as a partner. Net decrease = $20,000. Basis = $30,000 - $20,000 = $10,000.
Common mistakes
Forgetting to add back the partner's share of the liability.
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