Isaac made a contribution of property to the newly formed XYZ Partnership for a

Question

Isaac made a contribution of property to the newly formed XYZ Partnership for a two thirds capital and profits interest. The property had a $30,000 adjusted basis to Isaac and a $150,000 fair market value on the contribution date. The property was also encumbered by a $50,000 nonrecourse debt, which was transferred to the partnership on that date. Another partner, Beth, contributes $50,000 for a one third-capital and profits interest.

a) Calculated Isaac and Beth’s basis for their partnership’s interest at the time of the contributions

b) Calculate the partnership’s basis for each of its assets.

Explanation / Answer

Answer a

Calculated Isaac and Beth’s basis for their partnership’s interest at the time of the contributions

Isaac basis for partnership’s interest at the time of the contributions (two thirds capital and profits interest)

= $30,000 (adjusted basis to Isaac)

Beth’s basis for partnership’s interest at the time of the contributions (one third-capital and profits interest)

= $50,000

Answer b

Calculate the partnership’s basis for each of its assets.

The partnership’s basis for assets contributed by Isaac

= $150,000 (fair market value of property) - $50,000 (nonrecourse debt)

= $ 100,000

The partnership’s basis for assets contributed by Beth

= $50,000

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