Stella acquired a 25% interest in the STUV Partnership by contributing land having an adjusted basis of $32,000 and a fair market value of $100,000. The land was subject to a $48,000 mortgage, which was assumed by STUV. No other liabilities existed at the time of contribution. What is Stella's basis in her partnership interest?
A)$0
B)$32,000
C)$52,000
D)$64,000

Question

Quizplus · Accepted Answer

Stella's basis in her partnership interest starts with her adjusted basis in the contributed land ($32,000), but then she must reduce that basis by the $48,000 mortgage assumed by the partnership, which exceeds her basis in the land. This results in a negative number, but a partner's basis cannot go below zero, so Stella's basis in her partnership interest is $0.

Stella Acquired a 25% Interest in the STUV Partnership by Contributing