Mr. Apple and Mrs. Pear form a partnership to operate a restaurant. Mr. Apple is a general partner who contributes $100,000.

Mrs. Pear is a limited partner who contributes $500,000.

The partnership buys restaurant equipment for $500,000, which is subject to a note for $400,000.

The additional $500,000 that Mrs. Pear contributed is used for working capital.

Task: Discuss the tax treatment of the $400,000 note showing calculations. Then discuss the tax treatment of the $400,000 note, if the equipment was purchased with a nonrecourse note.