Question

Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Cramer's tax basis in its partnership interest

Answer 1

Answer:

$850,000

Explanation:

Cramer's tax basis in its partnership interest can be estimated as follows:

Cramer's cash contribution to the general partnership = $500,000

Cramer's share of the recourse debt borrowed = $700,000 / 2 = $350,000

Cramer's tax basis in its partnership interest = Cramer's cash contribution + Cramer's share of the recourse debt = $500,000 + $350,000 = $850,000

Note:

The reecourse debt is shared equally as coventionally required when the profit and loss sharing is not stated in the question.