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On March 15, 20X9, Troy, Peter, and Sarah formed Picture Perfect general partnership. This partnership was created to sell a variety of cameras, picture frames, and other photography accessories. When it was formed, the partners received equal profits and capital interests and the following items were contributed by each partner: Troy-cash of $3,000, inventory with a FMV and tax basis of $5,000, and a building with a FMV of $22,000 and adjusted basis of $10,000. Additionally, the building was secured by a $10,000 nonrecourse mortgage. Peter-cash of $5,000, accounts payable of $12,000 (recourse debt for which each partner becomes equally responsible), and land with a FMV of $27,000 and tax basis of $20,000. Sarah – cash of $2,000, accounts receivable with a FMV and tax basis of $1,000, and equipment with a FMV of $40,000 and adjusted basis of $3,500. Sarah also contributed a $23,000 nonrecourse note payable secured by the equipment. What is Troy’s outside basis and how much gain (loss) must he recognize in 20X9 when Picture Perfect was formed?
Expert Answer
Solution :- Outside basis of Troy = [ 3000 + 5000 + 10000(NOTE) – 10000 + { (10000 + 12000 + 23000) * 1 / 3 } ]
= [ 3000 + 5000 + 10000 – 10000 + { 45000 * 1 / 3 } ]
= 8000 + 15000
= $ 23000.
Trroy will not recognize any gain or any loss at the time of the formation of Picture Perfect Partnership.
Conclusion :-
| Outside basis of Troy | $ 23000. |
No gain or loss must be recognized by Troy at the time of formation of Picture Perfect Partnership.
Note :- Adjusted basis value of building amounting to $ 10,000 will be added while calculating the outside basis of troy.
