Question

Below problem has been posted before with incorrect answers. Please provide or show calculations for better understanding. Thank you.

Jo and Velma are equal owners of the JV Partnership. Jo invests $500,000 cash in the partnership. Velma contributes land and a building (basis to her of $125,000, fair market value of $500,000). The entity then borrows $250,000 cash using recourse financing and $100,000 using nonrecourse financing.

a. Jo's outside basis is $, and Velma's is $.

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b. Jo's at-risk basis is $, and Velma's is $.

Answer 1

Solution:

a. Outside basis: Jo's $675000, and Velma's is $300000.

b. At-risk basis: Jo's $625000, and Velma's is $250000

Working:

Jo outside basis
Cash	500,000
Share of nonrecourse financing	50,000
Share of recourse financing	125,000
	675,000
Velma outside basis
Land and building adjusted basis	125,000
Share of nonrecourse financing	50,000
Share of recourse financing	125,000
	300,000

Jo at-risk basis
Cash	500,000
Share of nonrecourse financing	125,000
	625,000
Velma at-risk basis
Cash	125,000
Share of nonrecourse financing	125,000
	250,000