The BAM Partnership distributed the following assets to partner Barbie in a proportionate nonliquidating distribution:
$10,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $10,000, fair market value of $30,000). Barbie's basis in her partnership interest was $40,000 immediately before the distribution. Barbie will allocate a basis of $10,000 and $20,000, respectively, to the two land parcels, and her basis in her partnership interest will be reduced to $0.

Question

Quizplus · Accepted Answer

Barbie's basis in the distributed assets must equal her basis in her partnership interest immediately before the distribution, which is $40,000. The basis must be allocated among the distributed assets, including cash. Therefore, after allocating $10,000 of basis to the cash received, the remaining $30,000 of basis must be allocated to the two parcels of land based on their relative fair market values or some other reasonable method, not necessarily $10,000 and $20,000 as stated. Her basis in the partnership interest would indeed be reduced to $0 after the distribution.

The BAM Partnership Distributed the Following Assets to Partner Barbie