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?

Question

Quizplus · Accepted Answer

The distribution of the land to Sergio triggers a deemed sale of Mirabelle's partnership interest. The deemed sale results in a gain of $7,000 ($12,000 FMV - $5,000 basis). Under IRC Section 734(b), Mirabelle's partnership basis is increased by the amount of the gain recognized, which is $4,000 ($7,000 gain x 50% partnership interest).

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