Tyson is a 25% partner in the KT Partnership. On January 1, KT makes a proportionate distribution of $16,000 cash, inventory with a $10,000 fair value (inside basis $4,000), land A with a fair value of $8,000 (inside basis of $12,000) and land B with a fair value of $6,000 (inside basis of $4,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT partnership interest is $23,000. What is Tyson's basis in the distributed inventory, land A and land B?

Question

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Tyson's bases in the distributed assets are $16,000 cash, $4,000 inventory, $2,000 land A and $1,000 land B. He first allocates his outside basis to the distributed assets in an amount equal to KT's basis ($16,000 cash, $4,000 inventory, $12,000 land A, and $4,000 land B). This results in a required decrease of $13,000 ($36,000 − $23,000). He reduces the basis in land A by the unrealized depreciation ($4,000), which leaves a required decrease of $9,000 that Tyson must allocate to the 2 parcels of land based on their relative adjusted bases. This results in an additional decrease to land A of $6,000 and a decrease to land B of $3,000.

Tyson Is a 25% Partner in the KT Partnership