An equal partnership is formed by Rita and Gerry.Rita contributes cash of $10,000 and a building with a fair market value of $150,000, adjusted basis of $55,000, and subject to a liability of $60,000.Gerry contributes cash of $100,000.What is Rita's basis in her partnership interest immediately after formation of the partnership?

Question

Quizplus · Accepted Answer

Rita's basis is calculated as follows: Cash contributed ($10,000) + Adjusted basis of the building ($55,000) - Liability assumed by the partnership ($60,000) = $5,000. Since the liability exceeds the adjusted basis, the excess ($5,000) is treated as a gain, increasing her basis to $35,000.

An Equal Partnership Is Formed by Rita and Gerry