Question

Paul Stanley transfers $20,000 in cash, Joe Sweitzer transfers machinery with an adjusted basis of $5,000 and a fair market value of $20,000, and David Raines transfers land with an adjusted basis of $10,000, a fair market value of $26,000, and subject to a mortgage of $6,000 in exchange for equal interests in the newly formed PJD partnership. What are the partners’ initial adjusted bases in their partnership interests? What is the PJD partnership’s basis in its assets?

Answer 1

The partners' initial adjusted basis in their partnership interest will be equal to their adjusted basis in the assets they contributed to the partnership.

Therefore,

Paul Stanley's initial adjusted basis = $20,000

Joe Sweitzer's initial adjusted basis = $5,000

David Raines' initial adjusted basis = $10,000 - $6,000 = $4,000

The partnership's adjusted basis in the assets contributed by the partners is same as that of the partners in the contributed assets before the contribution.

Therefore,

PJD partnership's basis in cash, machinery, and land will be $20,000, $5,000, and $10,000 respectively.

PJD partnership's total basis in all assets = $20,000 + $5,000 + $10,000 = $35,000