Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000. The partnership has assets with a basis of $1,600,000. What is the amount of the basis adjustment, if the partnership has a 754 election in place?
A)$0
B)$150,000 increase in Han's basis in his partnership interest
C)$200,000 increase in Han's share of the basis in partnership assets
D)$1,000,000 increase in partnership assets

Question

Quizplus · Accepted Answer

With a 754 election, the basis of partnership assets is adjusted to the fair market value of the assets. Since Han purchases a 25% interest in the partnership for $600,000, his share of the partnership's basis adjustment would be calculated as follows:
Fair market value of partnership assets = $1,600,000
25% share of partnership assets = $400,000
Purchase price of 25% interest = $600,000
Excess purchase price = $200,000 (the amount by which the purchase price exceeds Han's share of the fair market value of the assets)
Therefore, Han's share of the basis adjustment would be a $200,000 increase in his share of the partnership assets' basis.

Han Purchases a 25% Interest in the CHOP Partnership from Huang