Question 1

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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

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

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?

How to approach this question

Full Answer

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