Daniela is a 25percent partner in the JRD Partnership. On January 1, JRD makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and accounts receivable with a fair value of $8,000 (inside basis of $12,000)to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $20,000. What is Daniela's basis in the distributed inventory and accounts receivable?
A)$2,000 inventory, $2,000 accounts receivable.
B)$8,000 inventory, $12,000 accounts receivable.
C)$0 inventory, $4,000 accounts receivable.
D)$16,000 inventory, $8,000 accounts receivable.

Question

Quizplus · Accepted Answer

Daniela's basis in the distributed inventory is $2,000 and in the accounts receivable is $2,000. The total basis of the distributed property cannot exceed her basis in the partnership interest ($20,000). After the cash distribution ($16,000), $4,000 of basis remains to be allocated to the inventory and accounts receivable. The inventory takes the inside basis of $8,000, but only $2,000 of basis is available after allocating $2,000 to the accounts receivable (inside basis $12,000, but only $2,000 available).

Daniela Is a 25percent Partner in the JRD Partnership