Question

Meredith and Katie form an equal partnership during the current year. Meredith contributes cash of $160,000, and Katie contributes property (adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $100,000. As a result of these transactions, Katie has a basis in her partnership interest of $40,000.
True
False

Answer 1

Answer:

False

Explanation:

Katie's S704(c) allocation = $90,000 (basis of the transferred property) - $100,000 (debt) = $10,000

The remaining debt of the partnership = $100,000 - $10,000 = $90,000

Katie's basis in the partnership = 50% x remaining debt = 50% x $90,000 = $45,000