Jane contributes land with an FMV of $100,000 and a basis of $40,000 to the Green Partnership in exchange for a 25% partnership interest. The partnership assumes the $80,000 mortgage on the land. Mary has a 25% share of partnership liabilities. The Green Partnership has $8,000 in liabilities immediately before Jane's contribution. What is Jane's basis in her partnership interest?
What will be an ideal response?
Basis of contributed property $40,000
Plus: Jane's share of existing partnership liabilities ($8,000 × 0.25) 2,000
Minus: Jane's liabilities assumed by the other partners ($80,000 × 0.75) (60,000)
Jane's basis in her partnership interest $ 0
The cash deemed distributed in excess of Jane's predistribution basis causes her to recognize an $18,000 ($60,000 - $42,000) gain. Jane reduces her basis to zero since a partner's basis in the partnership interest can never be less than zero.
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