Mack has a basis in a partnership interest of $200,000, including his share of partnership debt. At the end of the current year, the partnership distributed to Mack, in a proportionate current (nonliquidating) distribution, cash of $20,000, inventory (basis to the partnership of $30,000 and fair market value of $40,000), and land (basis to the partnership of $40,000 and fair market value of $42,000). In addition, Mack's share of partnership debt decreased by
$12,000 during the year. What basis does Mack take in the inventory and land and in the partnership interest
(including debt share) following the distribution?
A) $30,000 basis in inventory; $40,000 basis in land, $98,000 basis in partnership.
B) $30,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.
C) $40,000 basis in inventory; $40,000 basis in land, $86,000 basis in partnership.
D) $40,000 basis in inventory; $42,000 basis in land, $98,000 basis in partnership.
E) $40,000 basis in inventory; $42,000 basis in land, $110,000 basis in partnership.

Question

Quizplus · Accepted Answer

In a nonliquidating distribution, Mack takes a basis in the inventory and land equal to the partnership's basis in those assets, which is $30,000 for the inventory and $40,000 for the land. Following the distribution and the decrease in his share of partnership debt, Mack's basis in the partnership interest is calculated as his original basis ($200,000) minus the cash received ($20,000), minus the decrease in his share of partnership debt ($12,000), plus the basis of the distributed assets ($30,000 + $40,000), resulting in a new basis of $98,000.

Mack Has a Basis in a Partnership Interest of $200,000