[The following information applies to the questions displayed below.] Cosmo cont

Question

[The following information applies to the questions displayed below.]

Cosmo contributed land with a fair market value of $312,500 and a tax basis of $107,250 to the Y Mountain partnership in exchange for a 30 percent profits and capital interest in the partnership. The land is secured by $208,000 of nonrecourse debt. Other than this nonrecourse debt, Y Mountain partnership does not have any debt. (Leave no answer blank. Enter zero if applicable.)

a. How much gain will Cosmo recognize from the contribution?

b. What is Cosmo’s tax basis in his partnership interest?

Explanation / Answer

       As reflected in the table below, Cosmo does not recognize any gain because the $208,000 of cash he is deemed to receive from debt relief does not exceed his basis in Y Mountain prior to this deemed distribution.

Description

Cosmo

Explanation

(1) Basis in contributed Land

$107,250

(2) Nonrecourse mortgage in excess of basis in contributed land

$100,750

Nonrecourse debt > basis is allocated only to Cosmo

(3) Remaining nonrecourse mortgage

$32,175

30%*(208000-100750)

Basis immediately prior to debt relief

$240,175

(4) Relief from mortgage debt

($208,000)

Cosmo’s initial tax basis in Y Mountain

$32,175

Description

Cosmo

Explanation

(1) Basis in contributed Land

$107,250

(2) Nonrecourse mortgage in excess of basis in contributed land

$100,750

Nonrecourse debt > basis is allocated only to Cosmo

(3) Remaining nonrecourse mortgage

$32,175

30%*(208000-100750)

Basis immediately prior to debt relief

$240,175

(4) Relief from mortgage debt

($208,000)

Cosmo’s initial tax basis in Y Mountain

$32,175

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