Final answer:
Mack's new basis in the distributed inventory and land would be the partnership's basis in such property, which are $30,000 and $40,000 respectively. His basis in the partnership interest after cash distribution and reduction in debt share would adjust to $156,000. Therefore correct option is F
Step-by-step explanation:
The student's question relates to how a partner in a partnership should adjust the basis of distributed property and remaining interest in the partnership following a current distribution.
Mack's initial basis in the partnership is $200,000, which includes his share of the partnership debt.
After receiving cash of $20,000, inventory with a basis of $30,000, and land with a basis of $40,000, along with a decrease in his debt share by $12,000, we must calculate his new bases in the inventory, land, and the partnership interest (including his share of debt).
First, cash received will reduce Mack's basis in the partnership.
His basis will be reduced by the cash distributed, which is $20,000. Mack's share of partnership debt reduces by $12,000, which further reduces his basis in the partnership.
The basis to Mack of the distributed property (inventory and land) must be the partnership's basis in such property at the time of the distribution, provided Mack's outside basis is not reduced below zero.
The inventory's basis is $30,000 and the land's basis is $40,000.
After conducting these adjustments, Mack's basis in the partnership interest (excluding his debt share) would be $168,000 ($200,000 initial basis less $20,000 cash received less $12,000 decrease in debt).
Adding his share of the partnership debt that now reduced, his new basis in the partnership interest including debt share would be $156,000. Therefore, the correct response would be:
- $30,000 basis in inventory
- $40,000 basis in land
- $156,000 basis in partnership interest (including debt share)
This option isn't listed above as a-d, implying that a computation error or misunderstanding might be present in the original question or answer choices, and further clarification may be necessary.
QUESTION:
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Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate current (nonliquidating) distribution, cash of $20,000, inventory (basis to the partnership of $30,000 and fair market value of $40,000), and land (basis to the partnership of $40,000 and fair market value of $42,000). In addition, Mack's share of partnership debt decreased by $12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest (including debt share) following the distribution?
a. $30,000 basis in inventory; $40,000 basis in land, $98,000 basis in partnership.
b. $30,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.
c. $40,000 basis in inventory; S40,000 basis in land, $86,000 basis in partnership.
d. $40,000 basis in inventory; $42,000 basis in land, $98,000 basis in partnership.
e. $40,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.
f. $30,000 basis in inventory; $40,000 basis in land, $156,000 basis in partnership.