Kathy is a 25% partner in the KDP Partnership and receives a parcel of land with a fair value of $150,000 (inside basis of $100,000) in complete liquidation of her partnership interest. Kathy's outside basis immediately before the distribution is $200,000. KDPcurrently has a §754 election in effect and has no hot assets or liabilities. What is KDP's special basis adjustment from the distribution?

Question

Quizplus · Accepted Answer

The partnership has a §754 election in effect, so the partnership must make a special basis adjustment to the property distributed to Kathy. The special basis adjustment is equal to the difference between the fair value of the property and its inside basis. In this case, the fair value of the property is $150,000 and the inside basis is $100,000, so the special basis adjustment is $50,000. This adjustment is a step-up in basis, so the partnership's basis in the property is now $150,000.

Kathy Is a 25% Partner in the KDP Partnership and Receives