Question

Which of the following allow a partnership that has elected Section 754 to make a special basis adjustment? (Check all that apply.)

A) A partner recognizes a gain or loss on a distribution.
B) A partner takes a basis in distributed property that differs from the partnership's inside basis in the property.
C) A new investor purchases a partnership interest from an existing partner.

Answer 1

A partnership that has elected Section 754 can make a special basis adjustment in three scenarios: a partner recognizes a gain or loss on a distribution, a partner takes a basis in distributed property that differs from the partnership's inside basis, and a new investor purchases a partnership interest from an existing partner.

Step-by-step explanation:

A partnership that has elected Section 754 can make a special basis adjustment in the following scenarios:

• A) A partner recognizes a gain or loss on a distribution: When a partner receives a distribution of property from the partnership and recognizes a gain or loss, the partnership is allowed to make a special basis adjustment.
• B) A partner takes a basis in distributed property that differs from the partnership's inside basis in the property: If a partner receives property from the partnership with a basis different from the partnership's inside basis in that property, the partnership can make a special basis adjustment.
• C) A new investor purchases a partnership interest from an existing partner: When a new investor purchases a partnership interest from an existing partner, the partnership is allowed to make a special basis adjustment.