Question

1. In return for a 20% partnershop interest, Mary contributes a machine having a fair market value of $60,000 and a $30,000 basis to the XY partnership. The partnership assumes mary's $15,000 liability arising from her purchase of the marchine and Mary has a 20% share of partnership liabilites. The XY partnership has $4,000 in liabilites immediately preceding her contribution. Calculate Mary's Partnership interest. Does Mary or the Partnership recognize any gain or loss?

2. Assume the same facts as above, except that the amount of the liability assumed by the XY partnership from Mary is $50,000.

Any help would be appreciated! Thank you.

Answer 1

1. FMV of the machine = 60,000

Basis = 30,000

Liabilities = 15,000

Since Mary's interest is 20%, her basis is calculated as below:

Adjusted basis in property = 30,000

Liability assumed by other partners (15,000 x 80%) = 12,000

Basis to be considered = 30,000 - 12,000 = 18,000. Mary/Partnership does not recognize any gain or loss.

2. Adjusted basis in property = 30,000

Liability assumed by other partners (50,000 x 80%) = 40,000

In this case, since the liability assumed by other partners is more than the basis in property, Mary would recognize gain to the extent of $10,000.