Catherine's basis was $50,000 in the CAR Partnership just before she received a proportionate current (nonliquidating) distribution consisting of land held for investment with a basis to CAR of $40,000 (value of $60,000), and inventory with a basis of $40,000 (value of $40,000). After the distribution, Catherine's bases in the land and inventory are:
A) $40,000 (land); $40,000 (inventory).
B) $40,000 (land); $10,000 (inventory).
C) $10,000 (land); $40,000 (inventory).
D) $25,000 (land); $25,000 (inventory).
E) $60,000 (land); $40,000 (inventory).

Question

Quizplus · Accepted Answer

Catherine's total basis in the partnership is $50,000. The total basis of the distributed assets is $80,000 ($40,000 land + $40,000 inventory). Since the total basis of the distributed assets exceeds her basis in the partnership, she must allocate her $50,000 basis between the land and inventory. The inventory retains its basis of $40,000, and the remaining $10,000 basis is allocated to the land.

Catherine's Basis Was $50,000 in the CAR Partnership Just Before