Andrew Snyder and Brian Torres decide to form a partnership called Custom Cars on January 1, 2022. Andrew contributes cash for a 40% interest in capital and profits. Brian contributes equipment with a basis of $10,000 and an FMV of $30,000 for the other 60% interest in capital and profits.

On January 1, 2022, the partnership bought machinery for use in its business by spending $20,000 cash and incurring a non-recourse liability of $40,000. The loan agreement stipulates that no payments need to be made until the seventh year. In addition, the machinery will be depreciated over five years (using straight-line depreciation and beginning with a full year of depreciation in 2022). Since the cash that Andrew contributed is being used to purchase this property, the partners have agreed to split the depreciation equally (50% to each partner).

Based on this information, prepare, determine and report each partner's basis at the end of Year 1 (2022). Be sure to indicate the adjustments that would be made to each partner's basis at the end of Year 4 (2025).