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31 May, 00:31

On June 1 of the current tax year Elisha and Ezra (who are equal partners) contribute property to form the Double E Partnership. Elisha contributes cash of $200,000. Ezra contributes a building and land with an adjusted basis and fair market value of $340,000, subject to a liability of $140,000. The partnership borrows $20,000 to finance construction of a parking lot in front of the building. At the end of the first year (December 31), the accrual basis partnership owes $8,200 in trade accounts payable to various creditors. The partnership reported net income of $30,000 for the year which they share equally.

Assume that Elisha and Ezra share equally in partnership liabilities. How much is Elisha's basis in the partnership interest on December 31? Ezra's?

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Answers (1)
  1. 31 May, 01:12
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    Solution:

    The relationship is called the deal to run the company by adding money, by distributing the business risk, etc. We share profit and loss from their relationship and the net profit is the partner's profits.

    Calculating the basis of partners

    Elisa's basis in partnership:

    Particulars Amount $

    Cash contribution 200,000

    Add:

    Share of the liability on the contributed land 70,000

    Share of the construction debt 10,000

    Share of the accounts payable debt 4,100

    Share of partnerships taxable income 15,000

    Hence, Elisha's basis in the partnership on December 30. $299,100

    Ezra's basis in partnership

    Particular Amount $

    Land and building 340,000

    Less: Debt assumed by the partnership 140,000

    Add:

    Share of liability on contributed land 70,000

    Share of construction debt 10,000

    Share of accounts payable debt 4,100

    Share of partnerships taxable income 15,000

    Ezra's basis in partnership on December 30. $299,100
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