A, B, C, and D form partnership ABCD.  Each partner contributes $10,000 cash for a 25% interest in capital, profits, and losses. The partnership purchases a building from an unrelated individual for $1,000,000.    The partnership pays $40,000 cash, takes out a $100,000 non-recourse loan from a commercial bank, secured by the property and the seller takes back a $860,000 non-recourse promissory note for the balance of the purchase price.

Partner A is the general partner and spends 2000 hours per year running the leasing and management operations of the building on a regular, continuous, and substantial basis. Partners B, C, and D spend over 500 hours annually reviewing financial operations of the property.  The property generates $160,000 in losses in the first year of operations.

a.     Compute each partner's basis in their partnership interest

b.    Compute the loss allocation to each partner.