Question

On January​ 1, Helmut pays​ $2,000 for a​ 10% capital,​ profits, and loss interest in a​ partnership, which has recourse liabilities of​ $20,000. The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses. In the same​ year, the partnership incurs losses of​ $6,000 and the recourse liabilities increase by​ $5,000. Helmut and the partnership use a calendar tax yearminus−end. ​Helmut's basis at yearminus−end is

Answer 1

Answer: $3,900

Explanation:

Helmut paid $2,000 for the interest in the partnership making their starting basis $2,000.

Basis from the liability has to be added. Helmut paid for 10% so,

= 20,000 * 10%

= $2,000

This is Helmut's basis in the liability

Liability increased by $5,000 during year.

Basis from that increase,

= 5,000 * 10%

= $500

Losses of $6,000 werw experienced which will reduce Helmut's basis by their proportion of shares.

= 6,000 * 10%

= $600

Helmut's basis at the end of the year is therefore,

= 2,000 (starting basis) + 2,000 (from Liability) + 500(increase in liability) - 600 ( losses)

= $3,900

Helmut's basis at year end is $3,900.