Question 3:In 2021, Emily and Erick form the EE Partnership by transferring assets from their sole proprietorships. Emil
Posted: Sun Jun 05, 2022 7:00 pm
Question 3:In 2021, Emily and Erick form the EE Partnership by
transferring assets from their sole proprietorships. Emily
contributes the furniture and fixtures with a fair market value of
$500,000 and a basis of $200,000. Erick contributes land with a
fair market value of $600,000 and basis of $400,000. The land
(contributed by Erick) had a mortgage of $100,000 which EE
partnership assumes. Emily and Erick will share income, gains m and
losses 50/50.
• Determine Emily’s outside basis in EE Partnership after she
and Erick have formed EE Partnership.
• Determine Erick’s outside basis in EE Partnership after he and
Emily have formed EE Partnership.
• During 2023, the partnership has the following results:
o Sales $1,000,000
o Cost of sales 600,000
o Utilities, rent, etc. 50,000
o Salary to sales staff 100,000
o LTCG (sale of stock) 5,000
o Charitable contributions 2,000
o Tax exempt income 1,000
o Distribution of cash to Erick 15,000
At the beginning of 2023, the partnership had a total debt (all
of which is either recourse or qualified nonrecourse debt) of
$400,000. At the end of 2023, the partnership had a total of
recourse and qualified nonrecourse debt of $425,000.
Also, at the beginning of 2023, Erick’s outside basis in EE
Partnership of $525,000
Determine:
a). Erick’s outside basis in EE Partnership at the end of
2023.
b). How Erick will be taxed on his transactions with the
partnership. Identify the amount and character of the
income/loss/deductions. You do NOT need to determine the amount of
the tax liability.
c). In 2024, EE Partnership sells the land originally
contributed by Erick. The sales price is $750,000. Determine the
amount of gain that must be allocated to Emily and to Erick as a
result of the sale of this property.
transferring assets from their sole proprietorships. Emily
contributes the furniture and fixtures with a fair market value of
$500,000 and a basis of $200,000. Erick contributes land with a
fair market value of $600,000 and basis of $400,000. The land
(contributed by Erick) had a mortgage of $100,000 which EE
partnership assumes. Emily and Erick will share income, gains m and
losses 50/50.
• Determine Emily’s outside basis in EE Partnership after she
and Erick have formed EE Partnership.
• Determine Erick’s outside basis in EE Partnership after he and
Emily have formed EE Partnership.
• During 2023, the partnership has the following results:
o Sales $1,000,000
o Cost of sales 600,000
o Utilities, rent, etc. 50,000
o Salary to sales staff 100,000
o LTCG (sale of stock) 5,000
o Charitable contributions 2,000
o Tax exempt income 1,000
o Distribution of cash to Erick 15,000
At the beginning of 2023, the partnership had a total debt (all
of which is either recourse or qualified nonrecourse debt) of
$400,000. At the end of 2023, the partnership had a total of
recourse and qualified nonrecourse debt of $425,000.
Also, at the beginning of 2023, Erick’s outside basis in EE
Partnership of $525,000
Determine:
a). Erick’s outside basis in EE Partnership at the end of
2023.
b). How Erick will be taxed on his transactions with the
partnership. Identify the amount and character of the
income/loss/deductions. You do NOT need to determine the amount of
the tax liability.
c). In 2024, EE Partnership sells the land originally
contributed by Erick. The sales price is $750,000. Determine the
amount of gain that must be allocated to Emily and to Erick as a
result of the sale of this property.