Question

Tyson is a 25 percent partner in the kt partnership. on january 1, kt makes a proportionate distribution of $16,000 cash, inventory with a $10,000 fair value (inside basis $4,000), land a with a fair value of $8,000 (inside basis of $12,000), and land b with a fair value of $6,000 (inside basis of $4,000) to tyson. kt has no liabilities at the date of the distribution. tyson's basis in his kt partnership interest is $23,000. what is tyson's basis in the distributed inventory and land? a) $0 inventory, $8,000 land. b) $8,000 inventory, $0 land. c) $8,000 inventory, $12,000 land. d) $16,000 inventory, $8,000 land.

Answer 1

No option applies, since the remaining basis must equal $7,000 between the three assets.

• inventory's basis = $4,000
• land A's basis = $2,000
• land B's basis = $1,000

Step-by-step explanation:

Tyson will not recognize any gain or loss, but the basis on the inventory and land will decrease.

We must decrease Tyson's basis by the amount that he received in cash = $23,000 - $16,000 = $7,000

inventory's basis = $4,000

land A's basis = $12,000

land B's basis = $4,000

total = $20,000, remaining basis $7,000 so the basis must decrease by $13,000

Tyson's basis will be first reduced by the lost value of land A (= $12,000 - $8,000).

inventory's basis = $4,000

land A's basis = $12,000 - $4,000 = $8,000

land B's basis = $4,000

His basis still must decrease by $9,000 that will be distributed between both land parcels. Land A will reduce by $6,000 (= $8,000/$12,000 x $9,000)and land B by $3,000 (= $4,000/$12,000 x $9,000).

inventory's basis = $4,000

land A's basis = $8,000 - $6,000 = $2,000

land B's basis = $4,000 - $3,000 = $1,000