Question

Cosmo contributed land with a fair market value of $332,500 and a tax basis of $138,000 to the Y Mountain partnership in exchange for a 40 percent profits and capital interest in the partnership. The land is secured by $163,000 of nonrecourse debt. Other than this nonrecourse debt, Y Mountain partnership does not have any debt
a. How much gain will Cosmo recognize from the contribution? (Leave no answer blank. Enter zero if applicable.)

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

Answer 1

Answer:

a. Zero gain

b. Cosmo’s tax basis in his partnership interest is $55,200

Explanation:

a. According to the given data there is a Zero gain, therefore Cosmo will recognize $ 0 gain from the contribution.

b. In order to calculate Cosmo’s tax basis in his partnership interest we would have to make the following calculation:

Cosmo’s tax basis in his partnership interest=  tax basis to the Y Mountain partership×percentage of profits and capital interest in the partnership

Cosmo’s tax basis in his partnership interest=$138,000×40%

Cosmo’s tax basis in his partnership interest=$55,200

Cosmo’s tax basis in his partnership interest is $55,200