During the current year,John and Ashley form the JA Partnership and agree to share profits and losses equally.John contributes cash of $50,000 and Ashley contributes land with a fair market value of $80,000 (subject to a $30,000 nonrecourse mortgage).On the contribution date,Ashley's adjusted basis in the land is $40,000.Immediately after formation,John's partnership outside basis is $65,000,Ashley's partnership outside basis is $25,000,and JA's basis in the land is $40,000.

Question

Quizplus · Accepted Answer

No gain or loss is recognized when a partner contributes property subject to nonrecourse debt to a partnership according to Reg.§ 1.752-3.One-half of the debt,$15,000,is allocated to Ashley.Therefore,Ashley is relieved of $15,000 of debt under § 752(b)for a net basis of $25,000 [$40,000 (land basis)- $30,000 (debt relief)+ $15,000 (debt share)].John has an adjusted basis for his partnership interest of $65,000 [$50,000 (cash contributed)+ $15,000 (liability assumed)].The land takes a carryover basis under § 723 of $40,000.

During the Current Year,John and Ashley Form the JA Partnership