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Homework answers / question archive / Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP)
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 a FMV of $24,000. His adjusted basis in the building was $12,000. In addition, the building was encumbered with a $7,200 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?
Multiple Choice
$4,800.
$7,200.
$16,800.
$19,200.
Answer - $7,200
Explanation -
a partner's outside basis consists of the basis of the contributed property less anydebt relief the property received plus the portion of debt the partner assumes basedupon the partner's interest in the partnership. In this case, the nonrecoursemortgage is allocated to the partners strictly according to their profit sharing ratiosbecause the mortgage does not exceed the basis in the contributed property.
[$12,000 - $7,200 + ($7,200 × 33%)]
Approximately it is $7,200
Therefore, Gerald's outside basis immediately after his contribution is $7,200.
