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23 March, 00:51

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 yearminus-end. Helmut's basis at yearminus-end is

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  1. 23 March, 01:10
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    Answer: $3,900

    Explanation:

    Helmut paid $2,000 for the interest in the partnership making their starting basis $2,000.

    Basis from the liability has to be added. Helmut paid for 10% so,

    = 20,000 * 10%

    = $2,000

    This is Helmut's basis in the liability

    Liability increased by $5,000 during year.

    Basis from that increase,

    = 5,000 * 10%

    = $500

    Losses of $6,000 werw experienced which will reduce Helmut's basis by their proportion of shares.

    = 6,000 * 10%

    = $600

    Helmut's basis at the end of the year is therefore,

    = 2,000 (starting basis) + 2,000 (from Liability) + 500 (increase in liability) - 600 (losses)

    = $3,900

    Helmut's basis at year end is $3,900.
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