Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Mr. Chips' tax basis in its partnership interest?
A) $500,000
B) $1,200,000
C) $850,000
D) $650,000

Question

Quizplus · Accepted Answer

Mr. Chips' initial tax basis is the tax basis of the building ($300,000) plus his share of the partnership's recourse debt ($350,000, assuming equal sharing), totaling $650,000.