[soynofoam]

I understand why the answer is zero. My only question revolves around the last statement of Wiley’s answer: Carr will have a $30,000 basis for the 25% partnership interest received. If he has 25% interest in the capital and profits, and the net assets are $600,000, why does he only have a $30,000 basis?

The following information pertains to Carr’s admission to the Smith & Jones partnership on July 1, 2010:

Carr’s contribution of capital: 800 shares of Ed Corp. stock bought in 1997 for $30,000; Fair market value $150,000 on July 1, 2010. Carr’s interest in capital and profits of Smith & Jones: 25%. Fair market value of net assets of Smith & Jones on July 1, 2010 after Carr’s admission: $600,000.

Carr’s gain in 2010 on the exchange of the Ed Corp. stock for Carr’s partnership interest was (d) $0.

Generally no gain or loss is recognized on the transfer of property to a partnership in exchange for a partnership interest. Since Carr’s gain is not recognized, there will be a carryover basis of $30,000 for the stock to the partnership, and Carr will have a $30,000 basis for the 25% partnership interest received.

Thanks for any explanation regarding his 25% interest vs. his basis.

[Anonymous]

% of ownership has nothing to do with initial basis. How much of the partnership you get is determined by the partners

[Author]

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