Question

Murtaugh decides he is ready to leave the LW Partnership and sells his interest (basis = $30,000) to Riggs for $75,000. Murtaugh was an original partner in LW when it was formed 5 years ago. LW has no debt. What is Rigg's basis and holding period in his newly acquired LW interest?

a Basis = $30,000; holding period begins at date of purchase
b Basis = $30,000; holding period carries over from previous partner
c Basis = $75,000; holding period begins at date of purchase

Answer 1

Riggs's basis in the partnership interest is $75,000, which is the amount he paid for it, and his holding period for tax purposes starts on the date he purchased the interest.

Step-by-step explanation:

The question involves the tax implications of transferring partnership interest and calculating the basis and holding period for a new partner. When Murtaugh sells his partnership interest to Riggs for $75,000, Riggs's basis in the newly acquired partnership interest is equal to the purchase price, which is $75,000. Moreover, Riggs's holding period for the partnership interest begins on the date of the purchase. Therefore, the correct answer is c Basis = $75,000; holding period begins at date of purchase.