Question

Eddie contributed $60,000 cash to Howling Partnership in exchange for a 50% partnership interest. Howling immediately borrowed $50,000 of debt that Eddie and the other partners had to guarantee personally based on their initial ownership interests. What is Eddie's tax basis in Howling?

a 85,000
b 110,000
c 60,000

Answer 1

Eddie's tax basis in Howling Partnership is $85,000, which includes his initial $60,000 contribution and his $25,000 share of the personally guaranteed partnership debt.

Step-by-step explanation:

The tax basis for Eddie in the Howling Partnership would be the sum of his initial capital contribution plus his share of the partnership debt that he is personally guaranteeing. Eddie contributed $60,000 cash for a 50% interest in the partnership. When Howling Partnership took on $50,000 of debt that Eddie personally guaranteed for his ownership share, his basis in the partnership increased by his 50% share of the debt. Therefore, Eddie's tax basis in the Howling Partnership is $85,000 ($60,000 initial contribution + $25,000 share of the debt).