Jennifer contributed property with a $48,000 basis and fair market value of $100

Question

Jennifer contributed property with a $48,000 basis and fair market value of $100,000 to the Maple Partnership in exchange for a 30% interest in partnership capital and profits. During the first year of partnership operations, Maple had net taxable income of $40,000 and tax-exempt income of $80,000. The partnership distributed $40,000 cash to Jennifer. Her share of partnership recourse liabilities on the last day of the partnership year was $30,000. Jennifer's adjusted basis (outside basis) for her partnership interest at year-end is: Select one:

a. $ 53,000.

b. $114,000.

c. $ 74,000.

d. $ 62,000.

Explanation / Answer

Answer) Option C = $ 74,000

While calculating adjusted basis or outside basis we only calculate the original tax basis which in this case is $48,000.

Recourse liabilities = $30,000

Jeniffer's Share = (40,000+80,000)*30%

=36,000

Jeniffer received extra cash = 40,000-36,000

= 4000

So, Jennifer's adjusted basis (outside basis) for her partnership interest at year-end is

= $48,000+$30,000-$4000

= $74,000

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