The LM Partnership terminates for tax purposes on July 15 when Latasha sells her 60% capital and profits interest to Zoe for $100,000. The partnership has no liabilities, and its assets at the time of termination are as follows: Marika, a 40% partner in the LM Partnership, has a $64,800 basis in her partnership interest (outside basis) at the time of the termination. She has held her LM Partnership interest for three years at the time of the termination. The bases of Marika and Zoe in the new LM Partnership is:

Question

The LM Partnership terminates for tax purposes on July 15 when Latasha sells her 60% capital and profits interest to Zoe for $100,000. The partnership has no liabilities, and its assets at the time of termination are as follows:  Marika, a 40% partner in the LM Partnership, has a $64,800 basis in her partnership interest (outside basis) at the time of the termination. She has held her LM Partnership interest for three years at the time of the termination. The bases of Marika and Zoe in the new LM Partnership is:

Quizplus · Accepted Answer

- Zoe's basis in the partnership interest is the amount she paid for it, which is $100,000.
- Marika's basis in the partnership interest is her outside basis of $64,800 plus her share of the partnership's liabilities, which is zero since the partnership has no liabilities. Therefore, her basis in the new partnership interest is $64,800. 
- The total basis in the partnership assets is $300,000 ($100,000 + $100,000 + $100,000). 
- Zoe's share of the new partnership is 100%, so her total basis is $300,000. 
- Marika's share of the new partnership is 40%, so her total basis is 40% of $300,000, which is $120,000. Therefore, the bases of Marika and Zoe in the new LM Partnership are $64,800 and $300,000, respectively, as shown in choice C.

The LM Partnership Terminates for Tax Purposes on July 15