B is corrent. The requirement is to determine the amount of Smith’s basis for his partnership interest. The basis of a partnership interest acquired through a contribution of property equals the amount of cash contributed plus the adjusted basis of any other contributed property. Here, Smith’s basis for the partnership interest includes the $3,000 cash, the $2,000 basis for stock, and the $2,500 cost of the computer, resulting in a total basis of $7,500.
A is incorrect. Basis is increased by the adjusted basis of contributed property.
C is incorrect. Basis is increased by the adjusted basis of contributed noncash property.
D is incorrect. Fair market value is not used in the computation.
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