Mary contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in ABC GP (a general partnership). Steve contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest. Steve's property was encumbered by a qualified nonrecourse debt of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year.
- Sales $760000
- Utilities, salaries, and other operating expenses $260000
- Short-term capital gain $10000
- Tax-exempt interest income $2000
- Charitable contributions $6000
- Distribution to Mary $12000
- Distribution to Steve 18000
During the current tax year, ABC refinanced the land and building. At the end of the year, ABC had recourse debt of $110,000 for partnership accounts payable and qualified nonrecourse debt of $180,000.
A. What is Mary's basis after formation of the partnership? Steve's basis?
B. What income and separately stated items does the partnership report on Mary's Schedules
K-1?
C. What items does Mary report on her tax return?
D. Assume that all partnership debts are shared proportionately. At the end of the tax year, what are Mary's basis and amount at risk in her partnership interest?
E. What is Mary's capital account balance at the beginning of the tax year?
F. What is Mary's capital account balance at the end of the tax year?
G. What accounts for the difference between Mary's ending capital account and her ending tax basis in the partnership interest?