The Happy Endings Partnership transfers a piece of land to Chata, a partner with a 35 percent interest in the partnership. The land has an adjusted cost base of $62,000 and a fair market value of $88,000. What will the effect of this be on the adjusted cost base of Chata's partnership interest?

Question

Quizplus · Accepted Answer

The adjusted cost base (ACB) of Chata's partnership interest will decrease by the proportion of the land's fair market value that corresponds to her partnership interest. Since the fair market value of the land is $88,000 and Chata has a 35% interest in the partnership, the decrease in ACB is 35% of $88,000, which is $30,800. However, the correct calculation involves the partnership's basis in the property transferred to the partner, not the fair market value. Therefore, the decrease should be based on the property's adjusted cost base ($62,000) multiplied by Chata's partnership interest (35%), resulting in a decrease of $21,700. The provided choices do not accurately reflect this calculation, suggesting a misunderstanding in the question's formulation or a need for clarification in the explanation.

The Happy Endings Partnership Transfers a Piece of Land to Chata