Question

Randolph is a 30 percent partner in the RD Partnership. On January 1, RD distributes $15,000 cash, inventory with a fair value of $20,000 (inside basis of $10,000), and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in his RD Partnership interest is $37,000. What is Randolph's basis in the distributed inventory and land

Answer 1

Randolph's basis on the inventory = $15,000

Randolph's basin on the land = $7,500

Step-by-step explanation:

Randolph's basis = $37,500

Randolph's basis after cash distribution = $37,500 - $15,000 = $22,500

• fair value of the inventory = $20,000, basis = $10,000
• fair value of the land = $10,000, basis = $5,000
• total fair value = $30,000, basis = $15,000

Randolph's basis on the inventory = RD's inventory basis + [(basis after cash - RD's basis) x relative weight of inventory] = $10,000 + [($22,500 - $15,000) x 2/3] = $10,000 + $5,000 = $15,000

Randolph's basin on the land = RD's land basis + [(basis after cash - RD's basis) x relative weight of land] =$5,000 + [($22,500 - $15,000) x 1/3] = $5,000 + $2,500 = $7,500