Pam has a $36,700 basis (including her share of debt) in her 50 percent partnership interest in the Meddoc Partnership before receiving any distributions. This year Meddoc makes a current distribution to Pam of a parcel of land with a $49,400 fair market value and a $40,500 basis to the partnership. The land is encumbered with a $18,400 mortgage (the partnership’s only liability)

What is the amount and character of Pam’s recognized gain or loss?
What is Pam’s basis in the land?
What is Pam’s remaining basis in her partnership interest?

A.$9,200

B.$40,500

C.$5,400

Explanation:

a. land encumbered with a $18,400 mortgage ×50% =$9,200

Hence:

Mortgage $18,400

Less $9,200

Balance $9,200

Therefore Pam must often try to put into consideration the effects of changes in debt before determining the distribution

effects.

Pam is treated as making a net contribution of cash to the partnership of $9,200, the difference between the full mortgage of $18,400 and her allocated share of the debt of $9,200. This deemed contribution thus increases Pam’s basis in Meddoc from $36,700 to $45,900 which makes Pam not to recognize any gain or loss on the current distribution.

b.Pam takes a carryover basis in the land equal to $40,500.

c.Pam’s outside basis in the partnership after the distribution is as follows:

Basis in Meddoc $36,700

Plus: Deemed contribution $9,200

Less: Land(40,500)

Remaining basis in Meddoc $5,400

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