Jenny has a $80,100 basis in her 50 percent partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Jenny of a parcel of land with an $108,000 fair value and a $87,100 basis to JM. The land is encumbered with a $41,550 mortgage (JM's only liability). What is Jenny's basis in the land and her remaining basis in JM after the distribution?

Question

Quizplus · Accepted Answer

The first step is to determine the amount of the operating distribution that Jenny will receive. Since it is a proportionate distribution, she will receive 50 percent of the distribution. Therefore, her share of the land is worth $54,000 and has a basis of $43,550 ($87,100 x 50%).

Next, we need to determine how the mortgage affects Jenny's basis. Since the mortgage is JM's only liability, it is allocated entirely to JM. Therefore, Jenny's basis is reduced by her share of the liability, which is $20,775 ($41,550 x 50%).

Finally, we need to determine Jenny's remaining basis in JM after the distribution. Her basis before the distribution was $80,100. Since she received a distribution with a fair value of $54,000 and a basis of $43,550, her ending basis in JM is $86,550 ($80,100 - $43,550 + $13,775).

Therefore, Jenny's basis in the land is $87,100 and her remaining basis in JM is $13,775, making choice C the correct answer.

Jenny Has a $80,100 Basis in Her 50 Percent Partnership