Question

Eddie contributed $60,000 cash to Howling Partnership in exchange for a 50% partnership interest. Howling immediately borrowed $50,000 of debt that Eddie and the other partners had to guarantee personally based on their initial ownership interests. What is Eddie's tax basis in Howling?

a $110,000
b $60,000
c $85,000

Answer 1

Eddie's tax basis in Howling Partnership is $55,000.

Step-by-step explanation:

Eddie's tax basis in Howling can be calculated by taking into account his initial cash contribution and his share of the guaranteed debt. Eddie contributed $60,000 in cash and has a 50% partnership interest. Therefore, his initial tax basis in Howling is $60,000 multiplied by 50%, which is $30,000. Additionally, Eddie and the other partners guaranteed a debt of $50,000, and since Eddie has a 50% ownership interest, his share of the guaranteed debt is $50,000 multiplied by 50%, which is $25,000. Therefore, Eddie's total tax basis in Howling is $30,000 (initial cash contribution) + $25,000 (share of guaranteed debt) = $55,000.