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South-Western Federal Taxation 2020: Individual Income Taxes
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Chapter 20 / Exercise 33
South-Western Federal Taxation 2020: Individual Income Taxes
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Chapter 20 Class Exercises 1. Peter, Lana, and James want to start a towing company that operates as a partnership. To do so, Peter contributes a truck for towing with a fair market value of $35,000 and adjusted tax basis of $30,000 for a 1/3 (33.3333…%) profits and capital interest. Lana contributes a small office suite she owns in a building downtown with a fair market value of $100,000 and an adjusted tax basis of $50,000 for a 1/3 profits and capital interest. James contributes $40,000 in cash for a 1/3 profits and capital interest. The partnership does not take on any debt from the partners. a. Do any of the partners have to immediately recognize a taxable income/gain (or loss) on the transactions above? If so, how much income/gain (loss) for each partner and what is its character?
b. What is each partner’s initial outside tax basis in his or her partnership interest?
c. What is the partnership’s tax basis in the property received (the truck, building, and cash)?
d. Prepare a balance sheet based on the tax basis from the above transactions (remember assets = liabilities + equity, where equity here would be in capital accounts for the three partners).
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South-Western Federal Taxation 2020: Individual Income Taxes
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Chapter 20 / Exercise 33
South-Western Federal Taxation 2020: Individual Income Taxes
Young/Nellen/Hoffman
Expert Verified
Chapter 20 Class Exercises

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