Morgan and Kristen formed an equal partnership on August 1 of the current year. Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000. Kristen contributed equipment with a basis of $42,000 and a value of $100,000. Kristen's tax basis in her interest is $42,000; Morgan's tax basis is $78,000.

Question

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The contributions of Morgan and Kristen are equal in value, with Morgan contributing $60,000 cash and land worth $40,000, and Kristen contributing equipment worth $100,000. Therefore, they each have a 50% interest in the partnership. Since their contributions are equal, the partnership is formed with a total capital contribution of $200,000 ($60,000 + $40,000 + $100,000). The tax basis of Kristen's interest is $42,000, which is equal to her basis in the equipment she contributed. The tax basis of Morgan's interest is $78,000, which is equal to her basis in the cash and land she contributed.

Morgan and Kristen Formed an Equal Partnership on August 1