Question

In: Accounting

If Q provides $52,500 of services in exchange for a $25% interest in the partnership, what is the tax effect to Q, X, Y, Z, and XYZ?

The XYZ partnership has the following balance sheet:

Assets	Tax Basis	FMV
Real estate	$300,000	$210,000

Liabilities	$0	$0

Capital
X	$100,000	$70,000
Y	$100,000	$70,000
Z	$100,000	$70,000
	$300,000	$210,000

If Q provides $52,500 of services in exchange for a $25% interest in the partnership, what is the tax effect to Q, X, Y, Z, and XYZ? Assume all of the partners are individuals. How much income does Q recognize? How much gain do X, Y, and Z recognize? How much of a deduction do they get? What basis will XYZ have in the Real estate? What is the balance sheet afterward? If the property is later sold for $210,000, how much gain will each partner recognize? What if it is sold for $180,000?

Expert Solution

Income to Q is 52500

Loss to each of them are,

FMV-Tax basis*interest rate/number of partners

210000-300000*25%/3= -7500

Deduction to each partner

= 52500/3 = 17500

Basis of Real estate

=300000*0.75+52500

=277500

After wards balance sheet

Assets tax basis fmv

Real estate 277500 210000

capital

x 75000 52500

y 75000 52500

q 75000 52500

z 52500 52500

Q 277500 210000

The new balance sheet is calculated by ,

Fmv = The begenning balance of each - loss of each

tax basis = total amount / 4

If the property is later sold for $210,000,then the gain will each partner recognize as

Total loss before q admits

=sales-basis

=210000-277500

= -67500

then the loss for each is 67500/3

=22500

if it is sold for $180,000

then sales-basis

=180000-277500

=97500

then the loss for each is 97500/3

32500

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