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?

Question

Quizplus · Accepted Answer

With a 754 election in place, the basis adjustment is made according to the percentage of the partnership interest purchased. Han purchased a 25% interest, so the basis adjustment will be 25% of the $800,000 ($1,600,000/2) increase in partnership assets resulting from the purchase. That is $200,000, so Han's share of the basis in partnership assets will increase by $200,000.

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