Question

Kim is offered a capital interest in a partnership whose sole asset is land with a fair market value (FMV) of $200,000 and an adjusted basis of $100,000. What is Kim's capital interest in the partnership?

a) $100,000
b) $150,000
c) $200,000
d) $50,000

Answer 1

Kim's capital interest in the partnership would be $200,000, as it is based on the current fair market value of the partnership's asset, which is land valued at $200,000.

Step-by-step explanation:

The question asks to determine Kim's capital interest in a partnership where the sole asset is land with a fair market value of $200,000 and an adjusted basis of $100,000. Kim's capital interest in the partnership would be based on the current market value of the partnership's assets as this reflects the amount Kim would be entitled to if the partnership was liquidated at its current values. Therefore, Kim's capital interest in the partnership would be the fair market value of the asset, which amounts to $200,000 (Option c).