Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with an FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?

Question

Everett Mullen

Business

8 October, 06:17

Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with an FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?

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Eaton · Answer 1

Gerald's outside basis 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 assumes based upon the Partner's interest in the partnership.

In this case, the nonrecourse mortagage is allocated to partners strictly according to their profit sharing ratios because the mortagage does not exceed the basis in the contributed profit, i. e,

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

Approximately it is $ 9,000

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