Reference no: EM132790229

A and B form the equal AB partnership which has no realty activities. Each contributed $10,000 to the capital of the partnership. The partnership purchased personal property for $20,000 cash, subject to an $80,000 recourse mortgage which is a general obligation of the partnership. The partnership suffered a $30,000 loss attributable exclusively to depreciation on the personal property in its first year of operation.

What are the partners' bases for their partnership interests? How much of the partnership loss may each partner deduct? What if instead the partnership liability is nonrecourse?

Problem a. Assume that the partnership liability is recourse and A and B share profits on a 40:60 ratio and losses on a 70:30 ratio. What result? What if instead the liability is nonrecourse?

Problem b. Assume that the partnership is a limited partnership with B as the limited partner. Furthermore, assume that the partnership agreement provides that all loss will be allocated to the general partner once the limited partner's capital account is reduced to zero. What if B is obligated under the partnership agreement to contribute an additional $30,000?

Problem c. What if B agreed to pay A up to $40,000 if A actually pays off the mortgage from his personal funds?

Problem d. What if B agreed to guarantee $40,000 of the mortgage obligation directly to the partnership's creditor?