Jenny has a $54,000 basis in her 50% partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate current distribution to Jenny of a parcel of land with an $80,000 fair value and a $64,000 basis to JM. The land is encumbered with a $30,000 mortgage (JM's only liability). What is Jenny's basis in the land and her remaining basis in JM after the distribution?

Question

Quizplus · Accepted Answer

Jenny's basis in the land will be equal to JM's basis ($64,000) reduced by any portion of the mortgage that she assumes, which is 50% of $30,000 or $15,000. Therefore, her basis in the land is $49,000 ($64,000 - $15,000). 
After the distribution, her remaining basis in JM will be her initial basis ($54,000) reduced by the amount of the distribution ($80,000 x 50%), or $40,000. Therefore, her remaining basis in JM will be $14,000 ($54,000 - $40,000). 
So, the correct answer is C: $64,000 land basis, $5,000 JM basis.

Jenny Has a $54,000 Basis in Her 50% Partnership Interest