(TCO 7) Harrison contributed $100,000 of cash in exchange for a 50% interest in the Miller partnership
capital and profits. During the first year of partnership operations, Miller had net taxable income of
$50,000. In addition Harrison received a $10,000 distribution of cash from the partnership and he has a
50% share in the $14,000 of partnership recourse liabilities on the last day of the partnership year.
Harrison’s adjusted basis (outside basis) for his partnership interest at year-end is:
None of the above.
Because Harrison is a 50% partner, his basis will increase by 50% of the partnership’s taxable income
and recourse liabilities. The distribution reduces his basis. Therefore, his basis is $100,000 contribution
+ $25,000 share of income + $7,000 share of liabilities - $10,000 distribution.
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(TCO 7) In the current year, Daisy formed an equal partnership with Peter. Daisy contributed land with an
adjusted basis of $15,000 and a fair market value of $75,000. Daisy also contributed $25,000 cash to the
partnership. Peter contributed land with an adjusted basis of $50,000 and a fair market value of $90,000.
The land contributed by Daisy was encumbered by a $10,000 nonrecourse debt. Assume the partners
share debt equally. Immediately after the formation, the basis of Peter’s partnership interest is:
Peter’s basis is determined as follows: