Question

Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general partnership in which both partners are active owners). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest. Anna's property was encumbered by qualified nonrecourse financing of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year. Sales $560,000 Utilities, salaries, depreciation, and other operating expenses 360,000 Short-term capital gain 10,000 Tax-exempt interest income 4,000 Charitable contributions (cash) 8,000 Distribution to Suzy 10,000 Distribution to Anna 20,000 During the current tax year, Suz-Anna refinanced the land and building (i.e., the original $100,000 debt was repaid and replaced with new debt). At the end of the year, Suz-Anna held recourse debt of $100,000 for partnership accounts payable (recourse to the partnership but not personally guaranteed by either of the partners) and qualified nonrecourse financing of $200,000. a. What is Suzy's basis in Suz-Anna after formation of the partnership

Answer 1

Step-by-step explanation:

a.

What is Suzy’s basis after formation of the partnership? Anna’s basis?

Suzy’s beginning basis in her partnership interest is $240,000, calculated as follows:

Basis in contributed business-related assets $200,000

Share of partnership nonrecourse debt 40,000

Total beginning basis $240,000

Anna’s beginning basis in her partnership interest is $340,000, calculated as follows:

Basis in contributed business-related assets $380,000

Relief of debt assumed by the partnership (100,000)

Share of partnership nonrecourse debt 60,000

Total beginning basis $340,000

b.

What income and separately stated items does the partnership report on Suzy’s Schedule K-1?What items does Suzy report on her tax return?

The partnership reports ordinary income of $200,000.

Separately stated items include the short-term capital gain($10,000),

tax-exempt interest income ($4,000), and

charitable contributions ($8,000).

Suzy’s Schedule K-1 shows the following items: Ordinary income $80,000

Short-term capital gain 4,000

Tax-exempt interest income 1,600

Charitable contributions 3,200Distribution received by Suzy 10,000

On her tax return,

Suzy reports the $80,000 of ordinary income on Schedule E. She reports the short-term capital gain ($4,000) with her capital transactions on Form 8949 and Schedule D. She reports the charitable contributions ($3,200) on Schedule A with her personal charitable contributions. The tax-exempt interest income and the distribution she receives are not taxable

c) Suzy's new basis should be the old basis , plus income, debt, STCG and interest, less distributions and charitable donations.

which implies

$240000 + $80000+ $40000 + $4000 + $1600 - $10000-$3200

= $352,400