Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000.Just prior to the sale, Paul's outside and inside bases in KDP are $48,000.KDP's balance sheet includes the following: $\begin{array}{llll}
& \text { Assets:} & \text { Basis } & \text { FMV } \
\text {Cash } &&\$48,000&\$48,000\
\text { Larnd held for irvestrnert } &&96,000&132,000\
\end{array}$

$\begin{array}{llll}
& \text { Liabilities ard Capital: } & \
\text { Capital } & &\text { Paul }&48,000\
&&\text {Kristi } &48,000\
&& \text { David } &48,000\
\end{array}$
If KDP has a §754 election in place, what is Kathy's special basis adjustment?

Question

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000.Just prior to the sale, Paul's outside and inside bases in KDP are $48,000.KDP's balance sheet includes the following: $\begin{array}{llll}
 & \text {  Assets:} & \text { Basis } & \text { FMV }   \
 \text {Cash  } &&\$48,000&\$48,000\
 \text { Larnd held for irvestrnert } &&96,000&132,000\
\end{array}$

$\begin{array}{llll}
 & \text { Liabilities ard Capital: } &  \
 \text { Capital } & &\text { Paul }&48,000\
 &&\text {Kristi  } &48,000\
&& \text { David } &48,000\
\end{array}$
 If KDP has a §754 election in place, what is Kathy's special basis adjustment?

Quizplus · Accepted Answer

First, we need to determine the total inside basis of KDP by adding up the individual inside bases:

Total Inside Basis = $48,000 + $48,000 + $48,000 = $144,000

Next, we need to determine Kathy's outside basis in her one-third interest in KDP:

Kathy's Outside Basis = $60,000

Now, we can determine the special basis adjustment by subtracting Kathy's outside basis from her share of the inside basis of KDP:

Special Basis Adjustment = (1/3) x ($144,000 - $60,000) = $12,000

Therefore, the correct answer is C ($12,000).

Kathy Purchases a One-Third Interest in the KDP Partnership from Paul