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 $120,000 nonrecourse debt,which was transferred to the partnership on that date.Another partner,Rochelle,shares 30% of the partnership income,gain,loss,deduction,and credit.Under IRS regulations,Rochelle's share of the nonrecourse debt for basis purposes is:
A)$20,000.
B)$30,000.
C)$36,000.
D)$100,000.
E)$120,000.

Question

Quizplus · Accepted Answer

For basis purposes, each partner's share of the nonrecourse debt is determined by their percentage share of the partnership's profits. Rochelle shares 30% of the partnership income, so her share of the nonrecourse debt is 30% of $120,000, which is $36,000. However, her share of the debt cannot exceed her share of the partnership's basis in the contributed property, which is 30% of Sharon's $100,000 adjusted basis, or $30,000. Therefore, Rochelle's share of the nonrecourse debt for basis purposes is $30,000.

Sharon Contributed Property to the Newly Formed QRST Partnership