Tyson is a 25percent partner in the KT Partnership. On January 1, KT makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and land with a fair value of $8,000 (inside basis of $12,000)to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT Partnership interest is $24,000. What is Tyson's basis in the distributed inventory and land?

Question

Quizplus · Accepted Answer

Tyson's basis in the distributed inventory and land is determined by first allocating his basis in the partnership interest ($24,000) to the cash distribution. After the $16,000 cash distribution, $8,000 of basis remains to be allocated to the other distributed assets. The inventory, with a fair market value greater than its inside basis, is allocated basis next. The remaining basis is allocated to the inventory, leaving no basis to be allocated to the land. Thus, Tyson's basis in the distributed inventory is $8,000, and his basis in the land is $0.

Tyson Is a 25percent Partner in the KT Partnership