Question

Lucian contributed $25,000 in cash for a 25% interest in a partnership. He also contributed property with an adjusted basis of $25,000 and a liability of $20,000. What is Lucian's basis in his partner

Answer 1

Lucian's basis in the partnership is initially calculated by adding the cash contribution and the property's adjusted basis, then subtracting the liability assumed by the partnership, leading to a basis of $30,000.

Step-by-step explanation:

The student's question pertains to the calculation of a partner's basis in a partnership when contributing cash and property with an associated liability. Lucian's initial basis would be his cash contribution of $25,000. However, in accounting for the property contribution, one must also consider the property's adjusted basis and the liability assumed by the partnership. While the property would add $25,000 to his basis, the $20,000 liability that the partnership takes on would effectively reduce Lucian's basis in the partnership. Therefore, Lucian's basis would initially increase by the property's adjusted basis, but then is reduced by the liability assumed by the partnership, resulting in his basis being $30,000 ($25,000 from cash contribution + $25,000 from property's adjusted basis - $20,000 liability assumed).

Answer 2

if the total contribution is capped at $25,000, including both cash and net property value, then Lucian's basis in the partnership would be $25,000. Therefore, option B is correct

To determine Lucian's basis in his partnership interest, we need to consider both his cash contribution and the adjusted basis of the property he contributed, as well as account for the liability associated with the property. Here's a detailed step-by-step calculation:

1. Cash Contribution:

- Lucian contributed $25,000 in cash.

2. Property Contribution:

- The adjusted basis of the property Lucian contributed is $25,000.

3. Liability Associated with the Property:

- The property has an associated liability of $20,000.

- In partnership tax rules, when a partner contributes property that has a liability, the partner's basis in the partnership interest is decreased by the amount of the liability that the partnership assumes.

4. Calculating Lucian's Basis:

- Start with the cash contribution: $25,000.

- Add the adjusted basis of the property: $25,000 + $25,000 = $50,000 (total contributions).

- Subtract the liability associated with the property: $50,000 - $20,000 = $30,000.

Based on these calculations, Lucian's basis in his partnership interest is $30,000.

However, if the question implies that the total contribution (cash plus property, before considering liability) should not exceed $25,000, then we need to adjust our calculations. In this case, the $25,000 includes both cash and the net basis of the property after accounting for the liability:

- Cash contribution: $25,000.

- Net basis of property: $25,000 (adjusted basis) - $20,000 (liability) = $5,000.

- Total contribution: $25,000 (which already includes both cash and net property value).

Therefore, if the total contribution is capped at $25,000, including both cash and net property value, then Lucian's basis in the partnership would be $25,000.

the complete Question is given below:

Lucian contributed $25,000 in cash for a 25% interest in a partnership. He also contributed property with an adjusted basis of $25,000 and a liability of $20,000. What is Lucian's basis in his partnership interest? $20,000 $25,000 $35,000 $50,000