Assume A and B form general partnership AB as equal partners.  A contributes land with a basis of $10 and fair market value of $100; B contributes $100 cash. Later, the value of the land increases to $500 at which time AB borrows $500 on a nonrecourse basis secured by the land. $400 of the proceeds of the loan are distributed, $200 to A and $200 to B. AB uses the traditional method to make section 704(c) allocations. There are no additional relevant facts.

a.      How is the nonrecourse loan allocated between A and B?

b.      What are A's outside basis and A's book capital account after the distribution?

c.      What are B's outside basis and B's book capital account after the distribution?

Answer rating: 100% (QA)

Answer a The nonrecourse loan shall be allocated to A and B in proportion to their share in the prof... View the full answer