Question

A customer subscribes to a $10,000 limited partnership interest. The comission is $1,000. The up-front costs are $500 for legal expenditures, and $500 for organization costs. What is the customer's beginning tax basis?
a. $10,000
b. $9,500
c. $9,000
d. $8,000

Answer 1

Answer:

(A) $10,000

Explanation:

The beginning of the partnership basis for tax purposes consists of all the money paid to the partnership which is $10, 000. The comission fee $1,000, the up-front costs which are $500 for legal expenditures, and $500 for organization costs are all included in the $10000 price and are integral part of the beginning basis. There are no up front deductions for these costs.

Adjustments to the beginning basis will occur after the partnership's first year of operations. At that point, a K-1 is issued, showing that partner's share of partnership income and loss; and any cash distributions made by the partnership or additional cash contributions made to the partnership. All of these items are netted against the beginning basis to arrive at the year-end adjusted basis. So the customer's beginning tax basis is $10,000.