Sarah Contributed Fully Depreciated ($0 Basis) Property Valued at $50,000

question 38

Essay

Sarah contributed fully depreciated ($0 basis) property valued at $50,000 to the RSTU Partnership in exchange for a
25% interest in partnership capital and profits. During the first year of partnership operations, RSTU had net taxable income of $200,000 and tax-exempt income of $4,000. The partnership distributed $10,000 cash to Sarah. Her share of partnership recourse liabilities on the last day of the partnership year was $20,000. What is Sarah's adjusted basis (outside basis) for her partnership interest at the end of the tax year?

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Definitions:

Production Possibilities

The various combinations of goods and services that an economy can produce, given its technological capabilities and available resources.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors, leading to specialized production and trade benefits.

Specialization

The process in which individuals, firms, or countries focus on producing a narrow range of goods or services to gain greater efficiencies and increase productivity.

Production Possibilities Curves

A graph that depicts the maximum potential output of one good for a given amount of output for another, assuming full efficiency and fixed resources.