Marcella has a $65,000 basis in her 50percent partnership interest in the JM Partnership before receiving any distributions. This year JM makes a proportionate operating distribution to Marcella of $10,000 cash and inventory with an $80,000 fair value and a $40,000 basis to JM. What is Marcella's basis in the inventory and her remaining basis in JM after the distribution?

Question

Quizplus · Accepted Answer

Marcella's basis in the inventory is equal to its basis in the partnership's hands right before the distribution ($40,000), not its fair market value. After the distribution, her basis in the partnership interest is reduced first by the cash received ($10,000), and then by the basis of the inventory distributed ($40,000), leaving her with a remaining basis in JM of $15,000 ($65,000 - $10,000 - $40,000).

Marcella Has a $65,000 Basis in Her 50percent Partnership Interest