Tyson is a 25% partner in the KT Partnership. On January 1, KT makes a proportionate distribution of $16,000 cash and land with a $16,000 fair value (inside basis $8,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT partnership interest is $20,000. What is Tyson's basis in the distributed land?

Question

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Tyson's basis in the distributed land is $4,000. He first allocates his outside basis to the distributed assets in an amount equal to KT's basis ($16,000 cash and $8,000 land). This results in a required decrease of $4,000. He reduces the basis in the land by the required decrease, which results in a basis of $4,000 to the land.

Tyson Is a 25% Partner in the KT Partnership