Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with a FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?
A) $6,000.
B) $9,000.
C) $21,000.
D) $24,000.

Question

Quizplus · Accepted Answer

A partner's outside basis consists of the basis of the contributed property less any debt relief the property received plus the portion of debt the partner assumes based upon the partner's interest in the partnership. In this case, the nonrecourse mortgage is allocated to the partners strictly according to their profit sharing ratios because the mortgage does not exceed the basis in the contributed property. [$15,000 − $9,000 + ($9,000 × 33%)].

Gerald Received a One-Third Capital and Profit (Loss) Interest in XYZ