On January 5,2013,Mike acquires a 50% interest in Precision Tools Partnership by contributing property with an adjusted basis of $20,000 and a fair market value of $24,000,subject to a mortgage of $16,000.What is Mike's basis in Precision Tools Partnership as of January 5,2013?

Question

Quizplus · Accepted Answer

When Mike acquires a 50% interest in Precision Tools Partnership by contributing property, his basis in the partnership will be the adjusted basis of the contributed property plus any cash contributed. In this case, Mike contributed property with an adjusted basis of $20,000 and a fair market value of $24,000, but subject to a mortgage of $16,000. Therefore, Mike's basis in the partnership will be:

Adjusted basis of contributed property = $20,000
Add: Portion of mortgage assumed by Mike = $16,000 x 50% = $8,000
Total basis = $20,000 + $8,000 = $28,000
However, since Mike only contributed 50% interest, his final basis in the partnership will be:
50% x $28,000 = $14,000
Therefore, the correct answer is C) $12,000.

On January 5,2013,Mike Acquires a 50% Interest in Precision Tools