Question

AB Corporation and YZ Corporation formed a partnership to construct a shopping mall. AB contributed $500,000 cash, and YZ contributed land ($500,000 FMV and $430,000 basis) in exchange for a 50 percent interest in ABYZ Partnership. Immediately after its formation, ABYZ borrowed $250,000 from a local bank. The debt is recourse (unsecured by any specific partnership asset). Compute each partner’s initial basis in its partnership interest, assuming that: a.Compute each partner’s initial basis in its partnership interest, assuming that both AB and YZ are general partners.b.Compute each partner’s initial basis in its partnership interest, assuming that both AB is a general partner, and YZ is a limited partner

Answer 1

Answer:

Part A:

AB Corporation:

AB initial basis in its partnership interest=$625,000

YZ Corporation:

YZ initial basis in its partnership interest=$555,000

Part B:

AB Corporation:

AB initial basis in its partnership interest=$750,000

YZ Corporation:

YZ initial basis in its partnership interest=$430,000

Explanation:

Part A:

(Both corporation are general partners and have 50 percent interest each so they have 50 percent share in resource debt).

AB Corporation:

Contribution of Cash by AB Corporation=$500,000

Share of AB in resource Debt=($250,000*0.5)=$125,000

AB initial basis in its partnership interest=$500,000+$125,000

AB initial basis in its partnership interest=$625,000

YZ Corporation:

Contribution of land by YZ Corporation=$430,000

Share of YZ in resource Debt=($250,000*0.5)=$125,000

YZ initial basis in its partnership interest=$430,000+$125,000

YZ initial basis in its partnership interest=$555,000

Part B:

Since YZ is limited partner is it has no resource debt share

AB Corporation:

Contribution of Cash by AB Corporation=$500,000

Share of AB in resource Debt=$250,000

AB initial basis in its partnership interest=$500,000+$250,000

AB initial basis in its partnership interest=$750,000

YZ Corporation:

Contribution of land by YZ Corporation=$430,000

Share of YZ in resource Debt=0

YZ initial basis in its partnership interest=$430,000+0

YZ initial basis in its partnership interest=$430,000