Reference no: EM13340823

Celeste contributed business-related assets valued at $250,000 (basis of $100,000) in exchange for her 50% interest in the Celestine Partnership. Christine contributed land and a building valued at $400,000(basis of $200,000) in exchange for the remaining 50% interest. Christine's property was encumbered by a qualified nonrecourse debt of $150, 000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year:

Sales                                                                                                       $350,000
Utilities, salaries, and other operating expenses-                                              $ 190,000
Qualified dividend income-                                                                            $6,000
Tax-exempt interest income -                                                                        $2,000
Charitable contributions -                                                                              $1000
Distribution to Celeste -                                                                                $20,000
Distribution to Christine -                                                                               $16,000

At the end of the current tax year, Celestine had recourse debt of $100,000 for partnership accounts payable and qualified nonrecourse debt of $140,000.

a.       What is Celeste's basis after formation of the partnership? Christine's basis?

b.      What income and separate stated items does the partnership report in Celeste's Schedule K-1? What items does Celeste report on her tax return?

c.       Assume all partnership debts are shared equally. At the end of the tax year, what are Celeste's basis and amount at risk in her partnership interest?