Question

Fred owns a small family farm and is in debt. He contacts Sunbelt Farm a larger local farm partnership to arrange a deal. The parties agree to a $2,000,000 valuation for Fred’s farmland and offers Fred a general partnership interest in exchange for the acreage. Sunbelt also agrees to transfer $500,000 to Fred’s bank account at closing to pay off his outstanding bills. What is Sunbelt’s basis in Fred’s land?

Answer 1

• Basis is also termed as share in property of partnership that you have contributed. Basis is used for calculating depreciation, Amortization, Gain or Loss on Realisation etc. There is two type of Basis in partnership for the same like Inside or Outside Basis. Inside basis is the share of individual asset of partnership internally for tax purpose and outside basis is actual share of individual partner in partnership.
• Therefore, the basis of Sunbelt in partnership with Fred will be as follow :-

Inside Basis = $500,000/$2,000,000 = 1/4 share

Outside Basis = $500,000 (He contributed in Partnership)