Aaron, Deanne, and Keon formed the Blue Bell General Partnership at the beginning of the current year. Aaron and Deanne each contributed $110,000 and Keon transferred an acre of undeveloped land to the partnership. The land had a tax basis of $70,000 and was appraised at $180,000. The land was also encumbered with a $70,000 nonrecourse mortgage for which no one was personally liable. All three partners agreed to split profits and losses equally. At the end of the first year, Blue Bell made a $7,000 principal payment on the mortgage. For the first year of operations, the partnership records disclosed the following information:
Sales revenue	470,000
Cost of goods sold	410,000
Operating expenses	70,000
Long-term capital gains	2,400
1231 gains	900
Charitable contributions	300
Municipal bond interest	300
Salary paid as a guaranteed payment to Deanne (not included in expenses)	3,000
a. Compute the adjusted basis of each partners interest in the partnership (their outside basis) immediately after the formation of the partnership.
Description	Keon	Aaron	Deanne
(1) Basis in contributed land
(2) Cash contributed
(3) Debt allocated to partners
(4) Relief from nonrecourse mortgage
(5) Gain recognized
(6) Partners initial tax basis	$0	$0	$0
b. List the separate items of partnership income, gains, losses, and deductions that the partners must show on their individual income tax returns that include the results of the partnerships first year of operations.
d. What are the partners adjusted bases in their partnership interests at the end of the first year of operations?
b & d.
The partners shares of ordinary business loss and separately stated items are reflected in the table below:
Self-employment Loss:
Keon: Ordinary Business Loss + Guaranteed Payment = ($4,333) + 0 = ($4,333).
Aaron: Ordinary Business Loss + Guaranteed Payment = ($4,333) + 0 = ($4,333).
Deanne: Ordinary Business Loss + Guaranteed Payment = ($4,333) + 3,000 = ($1,333).
Description	Total	Keon	Aaron	Deanne
(1) Partners initial Tax basis		$0	$0	$0
(2) Sales revenue
Less:
(3) Cost of goods sold
(4) Operating expenses
(5) Guaranteed payments
(6) Ordinary Business Loss
Separately Stated Items on Schedule K-1:
(7) Long-term capital gains
(8) Section 1231 gains
(9) Municipal bond interest
(10) Charitable contributions
(11) Mortgage reduction (deemed cash distribution)
(12) Self-employment Loss
(13) Guaranteed Payment
Partners ending tax basis		$0	$0	$0