Question

A partnership will take a carryover basis in an asset it acquires when?

1) A partner owning 25%
2) The partnership leases the asset from a partner on a one-year lease.
3) The partnership acquires the asset through a § 1031 like-kind exchange.
4) The partnership acquires the asset from a partner as a contribution to partnership capital under § 721(a).
5) None of these choices are correct; the partnership always takes a substituted basis in the assets it receives.

Answer 1

A partnership takes a carryover basis in an asset it acquires when a partner owns 25%. In other scenarios, the partnership takes a substituted basis, which is based on the fair market value of the asset.

Step-by-step explanation:

The partnership will take a carryover basis in an asset it acquires when:

1. A partner owning 25%
2. The partnership leases the asset from a partner on a one-year lease
3. The partnership acquires the asset through a § 1031 like-kind exchange
4. The partnership acquires the asset from a partner as a contribution to partnership capital under § 721(a)
5. None of these choices are correct; the partnership always takes a substituted basis in the assets it receives

When a partner owns 25% of the partnership, the partnership takes a carryover basis in the asset acquired. This means that the partnership's basis in the asset will be the same as the partner's basis in that asset before it was contributed to the partnership.

In the other scenarios mentioned, the partnership takes a substituted basis. This means that the partnership's basis in the asset will be the fair market value of the asset at the time of acquisition. The partner's basis is generally irrelevant to the partnership's basis in these situations.