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

Question

Leia Rosales

Business

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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Collin Tucker · Answer 1

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.