Question 1

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?

Accepted Answer

1. Start with Basis of Property Contributed: $40,000.
2. Subtract Liability Assumed by Partnership: ($20,000).
3. Add Partner's Share of Liability (50%): +$10,000.
4. Calculate: $40,000 - $20,000 + $10,000 = $30,000.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

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

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?

How to approach this question

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