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iheartpeter
Major Contributor

Joined: 17 Mar 2009
Location: United States
Online Status: Offline
Posts: 274

Posted: 16 Jan 2010 at 15:01 \| IP Logged

2 Questions from Becker 2008 R4

Question #2

Jones and Curry formed Major Partnership as equal partners by contributing the assets below:

Asset Adj Basis FMV

Jones Cash&nb sp; $45,000 ; $45,000

Curry Land $30,000 ; $57,000

The land was held by Curry as a capital asset, subject to a $12,000 mortgage, that was assumed by Major.

What was Curry's initial basis in the partnership interest?

A. $45,000 B. $30,000 C. $24,000 D. $18,000

AND

Question #4

Strom acquired a 25% interest in Ace partnership by contributing land having an adjusted basis of $16,000 and a FMV of $50,000. The land was subject to a $24,000 mortgage, which was assumed by Ace. No other liabilities existed at the time of the contribution. What was Strom's basis in Ace?

A. $0 B. $16,000 C. $26,000 D. $32,000

(answers are C and A, respectively)

Can someone work through these for me? I am lost. They seem like the same question but the answers are calculated differently?? What is the difference in what these two questions are asking?

Thanks!!!

__________________
BEC: 80 (May 2009)
AUD: 81 (August 2009)
REG: 90 (March 2010)
FAR: 80 (May 2010)

DONE!!

Carrie...On The Cheap

EAK5455
Regular
Regular

Joined: 08 Jan 2010
Location: United States
Online Status: Offline
Posts: 107

Posted: 16 Jan 2010 at 15:55 \| IP Logged

Question #2:

Curry's basis in his partnership interest is his transferred basis in the land of $30,000 reduced, but not below zero, by the portion of the
mortgage that he is now relieved of because the partnership assumes his mortgage which is $6,000. Therefore, Curry's basis is $24,000.

The big picture is that Curry's adjusted basis in the land before the transfer to the partnership already includes the full $12,000
liability. When he contributes the land to the partnership, he is relieved of the entire $12,000 and then assumes $6,000 because he is a 50%
partner in Major's profits and liabilities. Thus the net effect on Curry's basis in the land is a reduction of $6,000 and must reduce his
basis.

Question #4:

Strom's basis in his partnership interest is his transferred basis in the land of $16,000 reduced, but not below zero, by the portion of the
mortgage that he is now relieved of because the partnership assumes his mortgage which is $18,000. Therefore, Strom's basis is $0.

Also, Strom will have to recognize a gain on the acquisition of his partnership interest in the amount by which the reduction in his mortgage
exceeded his basis in the land. Therefore, Strom will recognize a $2,000 gain.

iheartpeter
Major Contributor

Joined: 17 Mar 2009
Location: United States
Online Status: Offline
Posts: 274

Posted: 16 Jan 2010 at 16:14 \| IP Logged

Oooohhh, I got it now! I was thinking that the basis had to be reduced by the amount of the liability that was attributed to that partner's interest. For example, in Question #4, I was taking reducing his basis of $16,000 by $6,000 (25% * $24,000) instead of $18,000. That makes sense. Thank you!!

__________________
BEC: 80 (May 2009)
AUD: 81 (August 2009)
REG: 90 (March 2010)
FAR: 80 (May 2010)

DONE!!

Carrie...On The Cheap

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