Oscar and Frank form an equal partnership, the O and F Partnership. Oscar contri
ID: 2421623 • Letter: O
Question
Oscar and Frank form an equal partnership, the O and F Partnership. Oscar contributes land with an adjusted basis of $45,000, subject to a mortgage of $100,000, in exchange for a partnership interest worth $250,000. Frank contributes cash of $100,000 and performs services for the partnership in exchange for a partnership interest worth $250,000.
What is the amount of Oscar's recognized gain or loss (if any) as a result of the contribution to the partnership in exchange for the partnership interest?
Explanation / Answer
Calculating Frank's Basis in Partnership:
It is being assumed that FRANK and OSCAR are equal partners, since they have same Partnership Interest of $ 250,000 each.
Adjusted Basis of Contributed Property: $ 45,000
(-) Part of Mortgage assumed by Frank being 50% partner $ 50,000
Basis of Partnership/ (Capital Gains) ($ 5,000)
Hence the Basis of Partnership would be Zero, since the Mortgage assumed by the partner (FRANK) is higher then the adjusted basis contributed by OSCAR, hence the difference of $ 5,000 would be treated as a Capital Gains in the hands of OSCAR for Sale or Exchange of Partnership Interest, however it would'nt increase the Basis of Partnership of OSCAR.