Randolph is a 30% partner in the RD Partnership. On January 1, RD distributes $15,000 cash, an investment with a fair value of $20,000 (inside basis of $10,000), and a parcel of land with a fair value of $10,000 (inside basis of $5,000) to Randolph in complete liquidation of his interest. RD has no liabilities at the date of the distribution. Randolph's basis in his RD partnership interest is $48,000. What is Randolph's basis in the distributed investment and land?

Question

Quizplus · Accepted Answer

Randolph's bases in the distributed assets are $15,000 cash, $22,000 investment, and $11,000 land. He first allocates his outside basis to the distributed assets in an amount equal to RD's basis ($15,000 cash, 10,000 investment, and $5,000 land). He then allocates remaining basis to assets other than cash and hot assets with unrealized appreciation. This step results in increases to the investment of $10,000 and to the land of $5,000. Finally, the remaining unallocated basis ($3,000) is allocated to assets other than cash and hot assets based on their relative fair values ($2,000 to investment and $1,000 to the land).

Randolph Is a 30% Partner in the RD Partnership