ExpertMedium1 markMultiple Choice
CPA · Question 31 · Area 3: Entity Tax Compliance
Partner A contributes land with a basis of $40,000 and FMV of $100,000 to a partnership for a 50% interest. The partnership assumes a $20,000 mortgage on the land. What is Partner A's initial outside basis?
Partner A contributes land with a basis of $40,000 and FMV of $100,000 to a partnership for a 50% interest. The partnership assumes a $20,000 mortgage on the land. What is Partner A's initial outside basis?
Answer options:
A.
$40,000
B.
$30,000
C.
$20,000
D.
$100,000
How to approach this question
1. Start with Basis of Property Contributed: $40,000.<br/>2. Subtract Liability Assumed by Partnership: ($20,000).<br/>3. Add Partner's Share of Liability (50%): +$10,000.<br/>4. Calculate: $40,000 - $20,000 + $10,000 = $30,000.
Full Answer
B.$30,000✓ Correct
Initial Basis = Basis of Asset - Debt Relief + Share of Partnership Debt.<br/>$40,000 - $20,000 (100% of debt) + $10,000 (50% share) = $30,000.
Common mistakes
Forgetting to add back the partner's share of the liability.
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