ExpertHard1 markMultiple Choice
CPA · Question 35 · Area V: Entity Taxation
A partner contributes property with an adjusted basis of $20,000 and a fair market value of $50,000 to a partnership in exchange for a 50% interest. The property is subject to a liability of $10,000, which the partnership assumes. What is the partner's initial outside basis in the partnership?
A partner contributes property with an adjusted basis of $20,000 and a fair market value of $50,000 to a partnership in exchange for a 50% interest. The property is subject to a liability of $10,000, which the partnership assumes. What is the partner's initial outside basis in the partnership?
Answer options:
A.
$20,000
B.
$15,000
C.
$10,000
D.
$50,000
How to approach this question
Formula: Basis of Asset - Debt Assumed by Partnership + Partner's Share of Partnership Debt.
Full Answer
B.$15,000✓ Correct
B
The partner's basis is the adjusted basis of the property contributed ($20,000) reduced by the net relief of liability. The partner is relieved of $10,000 debt but assumes 50% of it back ($5,000). Net reduction = $5,000. Basis = $20,000 - $5,000 = $15,000.
Common mistakes
Forgetting to add back the partner's share of the liability.
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