Question

Barbara receives a current distribution consisting of $2,000 cash plus other property with an adjusted basis to the partnership of $2,300 and a fair market value on the date of the distribution of $7,000. Barbara has a 10 percent interest in the partnership and her basis in her partnership interest, immediately prior to the distribution, is $5,000. What is Barbara's basis in the noncash property received in the current distribution? a. $2,300 b. $2,000 c. $3,000 d. $7,000 e. None of these

Answer 1

A) $2,300

Step-by-step explanation:

To record a property distribution, the partnership must use the basis of the property, not its fair market value. So Barbara's basis in the partnership will be reduced to $700 (= $5,000 partnership's basis - $2,000 cash - $2,300 property basis).

Property distributions are generally not considered income unless they exceed the partner's basis or the partner worked in the partnership and his/her work is being paid with the property.

Answer 2

a. $2,300

Step-by-step explanation:

The composition of the current distribution received by Barbara can be broken down as follows:

1. Cash = $2,000

2. Property with an adjusted basis to the partnership = $2,300

From the above, property with an adjusted basis to the partnership is Barbara's basis in the noncash property received in the current distribution, and this equal to $2,300 .