Question

AB Corporation and YZ Corporation formed a partnership to construct a shopping mall. AB contributed $641,000 cash, and YZ contributed land ($641,000 FMV and $571,000 basis) in exchange for a 50 percent interest in ABYZ Partnership. Immediately after its formation, ABYZ borrowed $320,500 from a local bank. The debt is recourse (unsecured by any specific partnership asset). a. Compute each partner's initial basis in its partnership interest, assuming that both AB and YZ are general partners. b. Compute each partner's initial basis in its partnership interest, assuming that AB is a general partner, and YZ is a limited partner. Complete this question by entering your answers in the tabs below. Required A Required B Compute each partner's initial basis in its partnership interest, assuming that AB is a general partner, and YZ is a limited partner.

Answer 1

Solution:

A.)

As equal general partners, AB and YZ each include half the partnership's recourse debt in their initial bases.

AB's contributed cash	$641,000
AB' share of recourse debt	$160,250($320,500 × 50%)
AB's initial basis in its partnership interest	$801,250

YZ's basis in contributed land	$571,000
YZ's share of recourse debt	$160,250($320500 ×50%)
YZ's initial basis in partnership interest	$731,250

B.)

Because YZ is limited partener, so it is not responsible for any of the partenership's recourse debt. As the general partner, AB is responsible for repayment and consequently can include the entire partnership debt in basis.

AB's contributed cash	$641,000
AB's share of recourse debt	$320,500
AB's initial basis in its partenership interest	$961,500

YZ' s contributed land	$571,000
YZ's share of recourse debt	0
YZ's initial basis in its partenership interest	$571,000