During the current year, John and Ashley form the JA Partnership and agree to share profits and losses equally. 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, Ashley's partnership outside basis is $25,000.

Question

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Ashley's outside basis is calculated by adding her share of the partnership's liabilities ($30,000 nonrecourse mortgage) to her adjusted basis in the contributed property ($40,000), resulting in an outside basis of $70,000. Therefore, immediately after formation, Ashley's partnership outside basis is $70,000, not $25,000.

During the Current Year, John and Ashley Form the JA