Sharon contributed property to the newly formed QRST Partnership. The property had a $100,000 adjusted basis to Sharon and a $160,000 fair market value on the contribution date. The property was also encumbered by a $90,000 nonrecourse debt, which was transferred to the partnership on that date. Sharon is treated as a general partner. She is allocated 30% of QRST's profits and 20% of QRST's losses. Sharon's basis in the partnership interest after the formation transaction is:
A) $28,000.
B) $37,000.
C) $88,000.
D) $118,000.
E) $127,000.

Question

Quizplus · Accepted Answer

Sharon's basis in the partnership interest is calculated as follows: her original basis in the property ($100,000) minus the nonrecourse debt transferred to the partnership ($90,000), plus her share of the partnership's nonrecourse debt (30% of $90,000 = $27,000). Therefore, $100,000 - $90,000 + $27,000 = $37,000.

Sharon Contributed Property to the Newly Formed QRST Partnership