Question

# Gerald received a 1/3 capital and profits limited partnership interest in the XYZ limited partnership. In...

Gerald received a 1/3 capital and profits limited partnership interest in the XYZ limited partnership. In exchange for this interest, Gerald contributed a building with a fair market value of \$30,000 with an adjusted basis to Gerald of \$ 15,000. It was encumbered by a \$ 9,000 nonrecourse debt that the general partners of XYZ personally assumed. What is Gerald's basis in his partnership interest immediately after this contribution?

Which is right ?

\$6,000

\$ 9,000

\$ 21,000

\$ 24,0000

Answer - Gerald's basis in his partnership interest immediately after his contribution is \$9000.

Explanation:

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 estimates based upon the Partner's interest in the partnership.

In this case, the nonrecourse debt is allotted to partners strictly according to their profit-sharing ratios because the debt does not surpass the basis in the contributed profit, i.e,

= [\$15,000 - \$9,000 + (\$9,000 X 33%)].

= \$ 9,000

Therefore, Gerald's outside basis immediately after his contribution is \$9000.

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