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Julie and Kate form an equal partnership during the current year. Julie contributes cash of $160,...

Julie and Kate form an equal partnership during the current year. Julie contributes cash of $160,000, and Kate contributes (adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $100,000. As a result of these transactions, Kate has a basis in her partnership interest of $40,000. (True or False)

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Answer #1

ANSWER: False

Kate is allocated the first $10,000 of debt ($100,000 debt – $90,000 basis), plus one-half of the remaining debt. She has an adjusted basis for her partnership interest of $45,000, calculated as follows:

property transferred 90,000

Less: liability assumed by partnership (100,000)

Plus: § 704(c) allocation of debt 10,000

Basis before remaining allocation –0–

Remaining allocation of debt ($90,000 ×50%) 45,000

Kate’s basis $45,000

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