Elise Contributes Property Having a $60,000 FMV and a $25,000

question 1399

Essay

Elise contributes property having a $60,000 FMV and a $25,000 adjusted basis and also renders accounting services valued at $30,000 in exchange for an 80% interest in the capital and profits of the EEE partnership. Evan contributes a building with a $90,000 FMV, an adjusted basis of $55,000, and subject to a mortgage of $70,000 for a 20% interest in the capital and profits of the EEE partnership. The partnership assumes the mortgage.
a. What is each partner's respective basis in the partnership?
b. What are the income tax consequences of the contributions?
c. What is the partnership's basis in the assets transferred in by Elise and Evan?

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Definitions:

Current Assets

Resources anticipated to be transformed into cash, disposed of, or used up within the span of one year or throughout the duration of the operating cycle, depending on which of the two periods extends further.

Current Liabilities

Financial obligations or debts a company is due to pay within a year.

Product Warranty

A promise made by a seller to a buyer to repair or replace a product within a specific time frame if it is found to be defective.

Warranty Obligations

Liabilities representing a company's responsibility to repair or replace products that fail to meet specified standards of performance.