Question

Strom acquired a 25% interest in Ace Partnership by contributing land having an adjusted basis of $16,000 and a fair market value of $50,000. The land was subject to a $24,000 mortgage, which was assumed by Ace. No other liabilities existed at the time of the contribution.
Required:
a. What was Strom's basis in Ace?

Answer 1

Answer:

The correct answer is $0.

Explanation:

According to the scenario, the given data are as follows:

Storm contributed land adjusted basis = $16,000

Fair market value of land = $50,000

Mortgage for land = $24,000

So, we can calculate the storm's basis by using following formula:

So, Temporary liability = $16,000 - $24,000

= - $8,000

As Storm's having 25% partnership

Then Storm basis = - $8,000 × 25%

= -$2,000

As, negative base is not possible.

Hence, Storm's base = $0.