Marcella has a $65,000 basis in her 50% partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate currentdistribution to Marcella of $10,000 cash and inventory with an $80,000 fair value and a$40,000 basis to JM. What is Marcella's basis in the inventory and her remaining basis inJM after the distribution?

Question

Quizplus · Accepted Answer

Marcella's basis in the inventory is equal to its fair value at the time of distribution, which is $80,000. Her remaining basis in JM after the distribution is calculated as follows: 
Beginning basis: $65,000 
Proportionate share of JM's income: (50% x JM's income) 
- assumed to be zero 
Proportionate share of JM's loss: (50% x JM's loss) 
- assumed to be zero 
Proportionate share of JM's nondeductible expenses: (50% x JM's nondeductible expenses) 
- assumed to be zero 
Distribution received: $10,000 
Adjusted basis in inventory received: $40,000 
Marcella's remaining basis in JM: $65,000 - $10,000 - $40,000 = $15,000. Therefore, the correct answer is D.

Marcella Has a $65,000 Basis in Her 50% Partnership Interest