Three Partners Chris, Joe, and Harry form a partnership with Chris and Joe are g

Question

Three Partners Chris, Joe, and Harry form a partnership with Chris and Joe are general partners with each have a 40% interest, and Harry is a limited partner with a 20% interest (assume they satisfy the tests for substantial economic effect under Section 704(b)). Chris contributes $10,000, Joe contributes $20,000, and Harry contributes $40,000. The partnership borrows $30,000 on a recourse basis and uses the proceeds, along with each partner’s cash contributions, to purchase land for $100,000. What is each partner’s basis in the partnership immediately following the purchase of the land?

Explanation / Answer

Answer:

In the given case Total Increase in liability is of $ 30,000. Out of this liability Harry's share will remain fixed at 20% i.e $ 6000. Remaining liability will be distributed between Chris and Joe equally. But Chris contribution is only $10000 and his liability is $ 12000 so his share will decreas by 25%.(2/8*100).Therefore there final share will be Chris=40*.75= 30%,Joe=40*.125%=50% and Harry=20%

Each Partner's Basis is as follows:

Chris 30%

Joe 50% and

Harry 20%

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