Tyson is a 25% partner in the KT Partnership. On January 1, KT distributes $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 KT is $23,000. What is Tyson's basis in the distributed inventory, land A and land B?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.

Question

Quizplus · Accepted Answer

Tyson first allocates his outside basis to the distributed assets based on KT's basis. This results in a decrease of $13,000 ($36,000 - $23,000). He then reduces the basis in land A by the unrealized depreciation ($4,000). This leaves a required decrease of $9,000 ($13,000 - $4,000) that Tyson must allocate to the two parcels of land based on their relative adjusted bases. This results in an additional decrease to land A of $6,000 ($12,000 x ($9,000 / $16,000)) and a decrease to land B of $3,000 ($4,000 x ($9,000 / $16,000)). Therefore, Tyson's basis in the distributed assets is $4,000 for inventory, $2,000 for land A, and $1,000 for land B. The correct choice is D.

Tyson Is a 25% Partner in the KT Partnership