M and E are equal partners in the ME Partnership.E decides to leave the partnership and receives a liquidating distribution of $15,000 cash and two items of inventory.Inventory R has a basis of $1,000 and a fair market value of $7,000 and inventory S has a basis of $2,000 and a fair market value of $5,000.E's adjusted basis for her partnership interest is $40,000.In addition to the cash and inventory, E also receives two parcels of land that are investments assets.Parcel A has a basis to the partnership of $12,000 and a fair market value of $16,000.Parcel B has a basis to the partnership of $20,000 and a fair market value of $18,000.What is E's basis in Parcel A and Parcel B? Assume that this distribution is proportionate.

Question

Quizplus · Accepted Answer

The distribution is proportionate, so E's basis in the land parcels is equal to her basis in the partnership interest multiplied by the ratio of the fair market value of each parcel to the total fair market value of all the assets distributed.E's basis in Parcel A = $40,000 x ($16,000 / $40,000) = $16,000E's basis in Parcel B = $40,000 x ($18,000 / $40,000) = $18,000

M and E Are Equal Partners in the ME Partnership