Susy contributed assets valued at $360,000 (basis of $200,000) in exchange for h
ID: 2725086 • Letter: S
Question
Susy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GPO ( a general partnership). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining interest. Anna's property was encumbered by a qualified nonrecourse debt of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year.
Sales $560,000
Utilities, salaries, and other operating expenses 360,000
Short-term capital gain 10,000
Tax-exempt interest income 4,000
Charitable contributions 8,000
Distribution to Suzy 10,000
Distribution to Anna 20,000
At the end of the year, Suz-Anna held recourse debt of $100,000 for partnership accounts payable and qualified nonrecourse debt of $200,000.
a. What is Suzy's basis after formation of the partnership? Anna's basis?
b. What income and separately stated items does Suz-Anna report on Suzy's schedule K-1? What items does Suzy report on her tax return?
c. All partnership debts are shared proportionately. At the end of the tax year, what are Suzy's basis and amount at risk in her partnership interest?
Explanation / Answer
Answer:-
(A)-
Suzy’s beginning basis in her partnership interest is $240,000, calculated as follows:
Basis in contributed business-related assets $200,000
Share of partnership nonrecourse debt 40,000
Total beginning basis $240,000
Anna’s beginning basis in her partnership interest is $340,000, calculated as follows:
Basis in contributed business-related assets $380,000
Relief of debt assumed by the partnership (100,000)
Share of partnership nonrecourse debt 60,000
Total beginning basis $340,000
(B)
The partnership reports ordinary income of $200,000. Separately stated items include the short-term capital gain($10,000), tax-exempt interest income ($4,000), and charitable contributions ($8,000). Suzy’s Schedule K-1 shows the following items:
Ordinary income $80,000
Short-term capital gain 4,000
Tax-exempt interest income 1,600
Charitable contributions 3,200
Distribution received by Suzy 10,000
On her tax return, Suzy reports the $80,000 of ordinary income on Schedule E. She reports the short-term capital gain ($4,000) with her capital transactions on Form 8949 and Schedule D. She reports the charitable contributions ($3,200) on Schedule A with her personal charitable contributions. The tax-exempt interest income and the distribution she receives are not taxable.
(C)
Assume that all partnerships debts are shared proportionally. At the At the end of the tax year, Suzy’s basis in her partnership interest is $392,400 (including a $80,000 share of partnership nonrecourse debt and a $40,000 share of partnership recourse debt), calculated as follows:
Suzy’s beginning basis $240,000
Increase in Suzy’s share of recourse debt
(40% × $100,000) 40,000
Increase in Suzy’s share of qualified nonrecourse debt
[40% × ($200,000 – $100,000)] 40,000
Partnership ordinary income 80,000
Short-term capital gain 4,000
Tax-exempt interest income 1,600
Charitable contributions (3,200)
Distribution (10,000)
Suzy’s ending basis $392,400
Suzy’s amount at risk is $392,400 because the nonrecourse debt is qualified nonrecoursefinancing (QNRF)
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