ExpertMedium1 markMultiple Choice
CPA · Question 18 · Area II: Entity Tax Compliance
Partner A contributes land with a basis of $60,000 and FMV of $100,000 to a partnership for a 50% interest. The land is subject to a $20,000 recourse liability which the partnership assumes. Partner A bears the economic risk of loss for 50% of this liability. What is Partner A's initial outside basis in the partnership interest?
Partner A contributes land with a basis of $60,000 and FMV of $100,000 to a partnership for a 50% interest. The land is subject to a $20,000 recourse liability which the partnership assumes. Partner A bears the economic risk of loss for 50% of this liability. What is Partner A's initial outside basis in the partnership interest?
Answer options:
A.
$60,000
B.
$50,000
C.
$40,000
D.
$70,000
How to approach this question
Formula: Adjusted Basis of Property - Debt Assumed by Partnership + Partner's Share of Partnership Debt. $60k - $20k + (50% * $20k) = $50k.
Full Answer
B.$50,000✓ Correct
B
IRC §722 and §752. Basis of contributed property: $60,000. Less: Liability assumed by partnership: ($20,000). Plus: Partner's share of liability (50%): $10,000. Total = $50,000.
Common mistakes
Forgetting to add back the partner's share of the liability; using FMV instead of basis.
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