That is correct!  Contributing debts to a partnership and becoming a partner can lead to a capital gain. That's correct! If a partner contributes debt to a partnership, it may result in a capital gain if the debt relief is greater than the partner's adjusted basis in their partnership interest. The reason why this happens is that the partner is relieved of any personal responsibility for the debt they contributed, which is considered a deemed distribution under U.S. tax law. Debt contributions could result in a taxable event if the debt relief (or any liabilities transferred to the partnership) leads to a gain. The specifics of tax law are complex and can vary based on the partnership's structure and transaction details.

To demonstrate, an example is provided: A person is a partner when they contribute a property for 20% stakes in the partnership. A property with an adjusted basis of $8,000 was contributed by him, and the partnership assumed the loan of $12,000. The parson is being given a debt relief of 80%, which is equivalent to $12,000 * 80% = $9,600. Furthermore, the property's adjusted basis is $8,000. Thus, the person's capital gain will be $1,600 ($9,600 - $8,000). The concept of cancelling debts, which is reported as income, is the same as this.