Tyson is a 25% partner in the KT Partnership. On January 1, KT makes a proportionate distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and land with a fair value of $8,000 (inside basis of $12,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT partnership interest is $24,000. What is Tyson's basis in the distributed inventory and land?

Question

Quizplus · Accepted Answer

Tyson's bases in the distributed assets are $16,000 cash, $8,000 inventory, and $0 land. He first allocates his outside basis to the distributed assets in an amount equal to KT's basis ($16,000 cash, $8,000 inventory, and $12,000 land). This results in a required decrease of $12,000. He reduces the basis in the land by the unrealized depreciation ($4,000). Finally, he reduces the basis of the land (other property) by the remaining required decrease ($8,000).

Tyson Is a 25% Partner in the KT Partnership