Ted King's basis for his interest in the Troy Partnership is $24,000. In complete liquidation of his interest, King receives cash of $4,000 and real property (not a Sec. 751 asset)having an FMV of $40,000. Troy's adjusted basis for this realty is $15,000. Section 736 does not apply. King's basis for this realty is
A)$15,000.
B)$20,000.
C)$36,000.
D)$40,000.

Question

Quizplus · Accepted Answer

King's basis in the real property is equal to his pro rata share of the partnership's adjusted basis in the property. Since Troy's adjusted basis in the property is $15,000 and King has a 50% interest in the partnership, his share of the adjusted basis is $7,500. However, since the FMV of the property is $40,000 and King received this property in exchange for his $24,000 interest in the partnership, his deemed cash received in the exchange is $24,000 - $4,000 = $20,000. Therefore, his basis in the real property is the sum of his share of the adjusted basis ($7,500) and the cash deemed received ($20,000), or $27,500.

Ted King's Basis for His Interest in the Troy Partnership