ExpertHard1 markMultiple Choice
CPA · Question 25 · Area V: Entity Taxation
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?
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?
Answer options:
A.
$10,000
B.
$8,000
C.
$6,000
D.
$12,000
How to approach this question
Formula: Basis of property contributed - Liability assumed by others + Share of liability retained.
Full Answer
B.$8,000✓ Correct
B
A's Basis = Adjusted Basis of Property Contributed ($10,000) - Liability Assumed by Partnership ($4,000) + A's Share of Partnership Liabilities (50% of $4,000 = $2,000). Calculation: $10,000 - $4,000 + $2,000 = $8,000.
Common mistakes
Forgetting to add back the partner's share of the liability they just contributed.
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