At partnership inception, Black acquires a 50% interest in Decorators Partnership by contributing property with an adjusted basis of $250,000. Black recognizes a gain if:
I.
The fair market value of the contributed property exceeds its adjusted basis.
II.
The property is encumbered by a mortgage with a balance of $100,000.
Choice "B" is correct. The fair market value of property (high or low) is irrelevant in determining Black's basis in Decorators. The partner's adjusted basis is used. Since the mortgage does not exceed Black's basis, he will not recognize a gain on the contribution of the encumbered property to Decorators.
