Partnerships

Question 1

when you contribute cash and property to a partnership in exchange for a partnership interest, how is your basis in the partnership calculated?

Answer 1

Your cash gives you basis in the amount of the cash.
You take your basis in the land you contribute
LESS a mortgage on it
ADD back your % of the partnership in the mortgage
ADD your % of recourse liabilities
The sum of these equal your basis

Question 2

if you contribute property and services to gain an interest in a partnership, how is your basis determined?

Answer 2

you get your basis in the land plus basis equal to the value of the services contributed. BUT- you must recognize wage income for the services provided- that’s what gives you tax basis

Question 3

if you contribute services to get a partnership interest, do you use the % of net assets or the % of the assets FMV of the partnership?

Answer 3

you use the fair market value of the partnership to determine the amount of ordinary income you recognize

Question 4

what depreciation method do partnerships use?

Answer 4

the partnership elects the method to use, but it has to be an approved method by the IRS

Question 5

if a partnership sells depreciable property at a gain in excess of the depreciation allowed on the property:

Answer 5

then it will be treated partly as a 1231 gain and partly as ordinary income

Question 6

for tax purposes, what will cause an end to a partnership?

Answer 6

a partnership terminates when it no longer does business as a partnership or if 50% or more interest in partnership capital and profits is exchanged within 12 months.

Question 7

when a partner sells his interest, what are the tax consequences?

Answer 7

if the partnership has unrealized receivables or substantially appreciated inventory, then the partner will recognize ordinary income on his share.

Also, whatever cash amount the partner sells his interest for is taxable, plus a gain in the amount of liabilities that he is no longer responsible for.