How is nonrecourse debt generally allocated among partners in a partnership?

In partnerships, the allocation of nonrecourse debt is primarily determined based on the partners' profit-sharing ratios. Nonrecourse debt is a type of debt where lenders can only seek repayment from the collateral, not the partners' other assets. This means that while partners might not bear any direct economic risk from this type of debt, the partnership agreement generally dictates how these debts are treated for tax purposes and how losses are allocated.

When calculating the basis for each partner in the partnership, the partnership’s debts, including nonrecourse debt, are included in the partners' bases in accordance with their profit-sharing arrangements. This convention aligns the allocation of nonrecourse liabilities with the profit-sharing structure already established among the partners, ensuring that financial obligations mirror economic interests.

In contrast, the other options suggest allocating debt based on economic risk of loss, prior basis of contributed property, or loss-sharing ratios, none of which align with the fundamental principles that govern how nonrecourse debt is typically shared within the partnership framework. Thus, the established practice of allocating nonrecourse debt as per profit-sharing ratios serves to maintain consistency and equitable treatment of all partners according to their agreed-upon financial stakes in the partnership.