Question 1

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?

Accepted Answer

Formula: Basis of contributed asset - Debt assumed by Partnership + Partner's share of that debt.
$80k - $20k + (50% * $20k) = $70k.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Forgetting to add back the partner's share of the liability.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 2

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