Question

Ernesto contributed $30,000 in cash for a 25% interest in a partnership. He also contributed property with an adjusted basis of $20,000 and a liability of $10,000. What is Ernesto's basis in his partnership interest?

$40,000
$42,500
$47,500
$50,000
​

Answer 1

Answer: $42,500

Explanation: Ernesto's basis in his partnership interest is $42,500. This is calculated by adding his cash contribution of $30,000 to the adjusted basis of his property contribution ($20,000) and subtracting the portion of the liability he assumed ($2,500, which is 25% of the $10,000 liability).