Partner Basis

[Terry D EA]

When forming a partnership, partner a contributes property with a basis of 45,000 and subject to 75,000 liability for 1/3 interest in the partnership. Can the partner have a negative "initial basis" or do the rules regarding transactions reducing basis below zero come into play here?

Thanks

Terry D.

[RoyDaleOne]

Well you have a couple of opportunities,

1. Did the partner have gain on the contribution of the property to the partnership?

2. A partner's basis includes the partner's share of the partnership's liability, with some exceptions.

[Terry D EA]

Thanks for your reply. I did find the answer and yes this partner would have a gain resulting from the liability assumed by the partnership which would equal 5,000 in this case which is the amount resulting from calculating the initial basis which still leaves his basis at zero.

Here is the calcualtion (5,000) = 45,000 - 75,000 x 1/3. The partnership assuming the liability reduces basis to zero and anything less than zero is taxable gain.

Thanks!!

Terry D.

[adamkelly]

Thanks for your reply. I did find the answer and yes this partner would have a gain resulting from the liability assumed by the partnership which would equal 5,000 in this case which is the amount resulting from calculating the initial basis which still leaves his basis at zero.

Here is the calcualtion (5,000) = 45,000 - 75,000 x 1/3. The partnership assuming the liability reduces basis to zero and anything less than zero is taxable gain.

Thanks!!

Terry D.

Terry,

I don't get it. 45k-75k x 1/3 = -10k

Adam