Jane contributes valuable property to a partnership in exchange for a general partnership interest.

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 Jane contributes valuable property to a partnership in exchange for a general partnership interest. The partnership also assumes the recourse mortgage Jane incurred when she purchased the property two years ago.

a. How will the liability affect the amount of gain that Jane must recognize?

b. How will it affect her basis in the partnership interest?

a. How will the liability affect the amount of gain that Jane must recognize?



A.

Jane recognizes gain on the contribution of property and assumption of a liability if the amount of the liability assumed by the other partners exceed Jane's basis in the contributed property plus her share of existing partnership liabilities.

 



B.

Jane recognizes a gain in an amount equal to the liability assumed by the partnership.



C.

Jane recognizes no gain or loss on the contribution of property and the partnership's assumption of the related liability. Jane would only have recognized a gain if the property had no liability associated it.



D.

No gain or loss is recognized on the contribution of property regardless of whether or not the partnership assumes a liability associated with the contributed property.

b. How will it affect her basis in the partnership interest?



A.

Her basis in the partnership interest will be increased by the amount of the liability assumed by the other partners.



B.

Her basis in the partnership interest will be decreased by the amount of the liability that she assumes.



C.

Her basis in the partnership interest will be decreased by the amount of the liability assumed by the other partners.

 



D.

There is no effect on her basis in the partnership interest.

 

 
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