Patrick acquired a 50% interest in a partnership by contributing property that had an adjusted basis of $8,000 and a fair market value of $29,000. The property was subject to a liability of $22,000, which the partnership assumed for legitimate business purposes. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Patrick's basis in the partnership is calculated as his adjusted basis in the property ($8,000) minus the liability assumed by the partnership ($22,000), resulting in a negative $14,000. However, he is relieved of half the liability ($11,000) due to his 50% interest, resulting in a net liability relief of $11,000. Therefore, he recognizes a gain of $3,000 ($11,000 - $8,000) and has a basis of zero in his partnership interest.

Patrick Acquired a 50% Interest in a Partnership by Contributing