26 C.F.R. § 1.722-1
The basis to a partner of a partnership interest acquired by a contribution of property, including money, to the partnership shall be the amount of money contributed plus the adjusted basis at the time of contribution of any property contributed. If the acquisition of an interest in partnership capital results in taxable income to a partner, such income shall constitute an addition to the basis of the partner's interest. See paragraph (b) of § 1.721-1 . If the contributed property is subject to indebtedness or if liabilities of the partner are assumed by the partnership, the basis of the contributing partner's interest shall be reduced by the portion of the indebtedness assumed by the other partners, since the partnership's assumption of his indebtedness is treated as a distribution of money to the partner. Conversely, the assumption by the other partners of a portion of the contributor's indebtedness is treated as a contribution of money by them. See section 752 and § 1.752-1 . See § 1.460-4(k)(3)(iv)(A) for rules relating to basis adjustments required where a contract accounted for under a long-term contract method of accounting is transferred in a contribution to which section 721(a) applies. The provisions of this section may be illustrated by the following examples:
| Adjusted basis to A of property contributed | $4,000 |
| Less portion of mortgage assumed by other partners which must be treated as a distribution (80 percent of $2,000) | 1,600 |
| Basis of A's interest | 2,400 |
| Adjusted basis to A of property contributed | $4,000 |
| Less portion of mortgage assumed by other partners which must be treated as a distribution (80 percent of $6,000) | 4,800 |
| (800) |
Since A's basis cannot be less than zero, the $800 in excess of basis, which is considered as a distribution of money under section 752(b), is treated as capital gain from the sale or exchange or a partnership interest. See section 731(a).
26 C.F.R. §1.722-1