Jerry contributed $8,000 for a 25% interest in a bookstore. healso contributed a cash register, with a fair market value of$3,000, adjusted basis of$2,500, and a loan amount of $1,500. whatis Jerry's beginning partnership basis in the bookstore? 1) 8,0002)9,000 3)9,375 4)10,500
Jerry contributed $8,000 for a 25% interest in a bookstore. healso contributed a cash register, with a fair market value of$3,000, adjusted basis of$2,500, and a loan amount of $1,500. whatis Jerry's beginning partnership basis in the bookstore? 1) 8,0002)9,000 3)9,375 4)10,500
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At-Risk and Passive Loss Limitations: At thebeginning of Year 1, Ed and Fran each contributed $1,000 cash to EFPartnership as equal partners. The partnership immediatley borrowed$98,000 on a nonrecourse basis and used the contributed cash andloan proceeds to purchase equipment costing $100,000. Thepartnership leases out the equipment on a five year lease for$10,000 per year. Over the five year period, the partnership makesthe following principal and interest payments on the loan:
| Year | Principal | Interest |
| 1 | $3,000 | $7,000 |
| 2 | $3,500 | $6,500 |
| 3 | $3,500 | $6,500 |
| 4 | $4,000 | $6,000 |
| 5 | $4,000 | $6,000 |
Assume the partnership depreciates the equipment according tothe following hypothetical schedule:
| Year | Depreciation |
| 1 | $40,000 |
| 2 | $25,000 |
| 3 | $15,000 |
| 4 | $8,000 |
| 5 | $8,000 |
| 6 | $4,000 |
At the beginning of year 6, the partnership sells the equipmentfor $82,000. The partnership claims the last $4,000 of thedepreciation at the beginning of year 6 as an expense, so theequipment has a zero basis when sold. At the beginning of year 6,the partnership also pays off the $80,000 loan balance anddistributes any remaining cash to Ed and Fran. Assume that eachpartner has a 33% ordinary tax rate and an 18.8% capital gains taxrate (including the 3.8% tax on net investment income)
A) Determine the partnership's gain/loss for each of the fiveyears and the beginning of the sixth year.
B) Assume that depreciation recapture applies but that theat-risk and passive activity loss rules do not apply. Using theresults from Part A and a 7% discount rate, determine the presentvalue of tax savings for both partners combined over the five yearperiod including the beginning of the sixth year. Why do these taxsavings occue?
C) Now assume the at-risk and passive activity loss rules doapply. Determine what the partners recognize over the five yearperiod including the beginning of the sixth year. Do the partnershave any tax savings in this situation. Why or why not? D) Providea schedule analyzing each partner's outside basis over the fiveyear period including the sixth year
