ExpertMedium1 markMultiple Choice
CPA · Question 35 · Area II: Entity Tax Compliance
Partner A contributes property (Basis $30,000, FMV $100,000) to a partnership for a 50% interest. The property is subject to a $40,000 recourse liability, which the partnership assumes. Partner A bears the economic risk of loss for 50% of this liability. What is Partner A's basis in the partnership interest immediately after contribution?
Partner A contributes property (Basis $30,000, FMV $100,000) to a partnership for a 50% interest. The property is subject to a $40,000 recourse liability, which the partnership assumes. Partner A bears the economic risk of loss for 50% of this liability. What is Partner A's basis in the partnership interest immediately after contribution?
Answer options:
A.
$30,000
B.
$10,000
C.
$0
D.
$50,000
How to approach this question
Formula: Basis of Property - Liability Assumed by Partnership + Partner's Share of Liability.
Full Answer
B.$10,000✓ Correct
B
IRC §722, §752. <br/>Initial Basis = $30,000. <br/>Less: Debt assumed by partnership = ($40,000). <br/>Plus: Partner's share of debt (50%) = $20,000. <br/>Net Basis = $10,000. <br/>(Note: Since basis is positive, no gain is recognized).
Common mistakes
Forgetting to add back the partner's share of the liability.
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