Question

AB Corporation and YZ Corporation formed a partnership to construct a shopping mall. AB contributed $575,000 cash, and YZ contributed land ($575,000 FMV and $505,000 basis) in exchange for a 50 percent interest in ABYZ Partnership. Immediately after its formation, ABYZ borrowed $287,500 from a local bank. The debt is recourse (unsecured by any specific partnership asset).

Required:

1. Compute each partner’s initial basis in its partnership interest, assuming that both AB and YZ are general partners.
2. Compute each partner’s initial basis in its partnership interest, assuming that AB is a general partner, and YZ is a limited partner.

Answer 1

Both corporation are general partners and have 50 percent interest each so they have 50 percent share in resource debt

AB Corporation:

Contribution of Cash by AB Corporation=$575,000

Share of AB in resource Debt=($287,500*0.5)

=$143,750

AB initial basis in its partnership interest=$575,000 + $143,750

AB initial basis in its partnership interest=$718,750

YZ Corporation:

Contribution of land by YZ Corporation=$505,000

Share of YZ in resource Debt=($287,500*0.5)

=$143,750

YZ initial basis in its partnership interest=$505,,000 + $143,750

YZ initial basis in its partnership interest=$648,750

Since YZ is limited partner is it has no resource debt share

AB Corporation:

Contribution of Cash by AB Corporation=$575,000

Share of AB in resource Debt=$287,500

AB initial basis in its partnership interest=$575,000 + $287,500

AB initial basis in its partnership interest=$862,500

YZ Corporation:

Contribution of land by YZ Corporation=$505,000

Share of YZ in resource Debt=0 (as a limited partner)

YZ initial basis in its partnership interest=$505,000 + $0

YZ initial basis in its partnership interest=$505,000

hope you got the answer, please comment for any clarification

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