Alice contributes equipment (fair market value of $82,000; adjusted basis of $20,000), subject to a $14,000 liability, to form Orange Partnership, a general partnership. Mary contributes $68,000 cash. Alice and Mary share equally in partnership profits and losses. What is Alice's and Mary's basis for their partnership interests?
A)$6,000 to Alice, $68,000 to Mary.
B)$6,000 to Alice, $75,000 to Mary.
C)$13,000 to Alice, $75,000 to Mary.
D)$20,000 to Alice, $68,000 to Mary.
E)None of the above.

Question

Quizplus · Accepted Answer

Alice's basis is calculated as her adjusted basis in the equipment ($20,000) minus the liability assumed by the partnership ($14,000), plus her share of the liability ($7,000, which is half of $14,000), resulting in $13,000. Mary's basis is her cash contribution of $68,000 plus her share of the liability ($7,000), resulting in $75,000.

Alice Contributes Equipment (Fair Market Value of $82,000; Adjusted Basis