25 May Question 1. In the current year, Derek formed an equal partnership wit
Question
1. In the current year, Derek formed an equal partnership with Cody. Derek contributed land with an adjusted basis of $110,000 and a fair market value of $200,000. Derek also contributed $50,000 cash to the partnership. Cody contributed land with an adjusted basis of $80,000 and a fair market value of $230,000. The land contributed by Derek was encumbered by a $60,000 nonrecourse debt. The land contributed by Cody was encumbered by $40,000 of nonrecourse debt. Assume the partners share debt equally. Immediately after the formation, what is the basis of Cody’s partnership interest?
2. Morgan is a 50% managing member in the calendar year, cash basis MKK LLC. The LLC received $150,000 income from services and paid the following other amounts:
| Rent expense | $10,000 |
| Salary expense to employees | 40,000 |
| Payment to Morgan for services, per the operating agreement | 30,000 |
| Distributions to partners, Kristin and Katie | 12,000 |
| Payment to 30% cash basis partner Katie for tax and accounting services | 10,000 |
How much will Morgan’s adjusted gross income increase as a result of the above items? What amount will be included in Morgan’s selfemployment tax calculation?
3. The MOP Partnership is involved in construction activities. Patricia has an adjusted basis for her partnership interest on January 1 of the current year of $600,000, consisting of the following:
| Capital account | $350,000 |
| Share of partnership recourse debt | 50,000 |
| Share of partnership nonrecourse debt |
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