Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago. This year the land is distributed to Sergio, another partner in the partnership. At the time of distribution, the land had a $12,000 FMV. What is the impact of the distribution on Mirabelle's partnership basis?
A)0
B)$4,000 increase
C)$4,000 decrease
D)$7,000 increase

Question

Quizplus · Accepted Answer

When property is distributed to a partner, the basis of the distributing partner's interest decreases by the portion of the partnership's basis attributable to the distributed property. In this case, Mirabelle's basis in the partnership will decrease by the FMV of the property distributed to Sergio ($12,000), but her basis in the property before distribution was only $9,000. Therefore, her basis in the partnership will decrease by $3,000 ($12,000 - $9,000). Mirabelle's original basis in the partnership ($5,000) is not relevant for this calculation. Therefore, the correct answer is B, a $4,000 increase in partnership basis.

Mirabelle Contributed Land with a $5,000 Basis and a $9,000