C and D form the equal CD general partnership. C contributed $1,000 cash, and D contributed property with a value of $3,500, a basis of $1,000. The property contributed by D is subject to a nonrecourse debt of $2,500. C and D agree to use the traditional method to allocate Section 704(c) gain.

Required:

Calculate C and Ds basis in their partnership interest. Clearly show your work and label your answer.