Martin and Melanie are forming the M and M Partnership. Martin contributes $60,0

Question

Martin and Melanie are forming the M and M Partnership. Martin contributes $60,000 cash and Melanie contributes nondepreciable property with an adjusted basis of $50,000 and a fair market value of $80,000. The property is subject to a $20,000 liability which is also transferred into the partnership and is shared equally by the partners for basis purposes. Martin and Melanie share in all partnership profits equally except for any precontribution gain which must be allocated according to the statutory rules required for built-in gain allocations.

What is Melanie's adjusted tax basis for her partnership interest immediately after the partnership is formed?

Explanation / Answer

If the contributed capital is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below to zero) by the liability assumed by other partners. Adjusted basis of property - $50,000 Less: 50% share of liability - $10,000 (assumed by other partner) ---------------------------------------- Partner basis                     - $40,000 ---------------------------------------- Therefore, the adjusted partner basis immediately after the partnership is formed is $40,000

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