Question

On January 4, 2017, Orange and Blue contributed $4,000 and $6,000 in cash, respectively, and formed the Macro General Partnership. The partnership agreement allocated profits and losses 40% to Orange and 60% to Blue. In 2018, Macro purchased property from an unrelated seller for $10,000 cash and a $60,000 mortgage note that was the general liability of the partnership. What is the effect of the liability on Orange’s basis in Macro?

Answer 1

partner's basis in the partnership is increased by the partner's share of partnership liabilities (Orange is a 40% partner).

Macro is obligated on the $60,000 mortgage;

40% x $60,000 = $24,000.

Even though the partnership is obligated to repay the mortgage, as a partner Orange is jointly and severally liable on the debt.