On January 1, Helmut pays $2,000 for a 10% capital, profits, and loss interest in a partnership, which has recourse liabilities of $20,000. The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses. In the same year, the partnership incurs losses of $6,000 and the recourse liabilities increase by $5,000. Helmut and the partnership use a calendar tax year-end. Helmut's basis at year-end is
A)$1,500.
B)$2,000.
C)$3,500.
D)$3,900.

Question

Quizplus · Accepted Answer

Helmut's initial basis is $2,000 for his 10% share. His share of the partnership loss for the year is $600 ($6,000 x 10%). His share of the increase in recourse liabilities is $500 ($5,000 x 10%). Therefore, his ending basis is $3,900 ($2,000 - $600 + $500 + $2,000 allocated share of recourse liabilities).

On January 1, Helmut Pays $2,000 for a 10% Capital