Cynthia sells her 1/3 interest in the CAR Partnership to Brandon for $80,000 cash. Brandon also assumed Cynthia's 1/3 share of partnership liabilities. On the date of sale, the partnership balance sheet and agreed-upon fair market values were as follows: If the partnership has a § 754 election in effect, the total "step-up" in basis that Brandon can take in the partnership assets is:

Question

Cynthia sells her 1/3 interest in the CAR Partnership to Brandon for $80,000 cash. Brandon also assumed Cynthia's 1/3 share of partnership liabilities. On the date of sale, the partnership balance sheet and agreed-upon fair market values were as follows:  If the partnership has a § 754 election in effect, the total "step-up" in basis that Brandon can take in the partnership assets is:

Quizplus · Accepted Answer

When a partner sells their interest in a partnership, the remaining partners may elect to make a § 754 election. This election allows the basis of partnership assets to be increased to their fair market value on the date of the sale, which can result in tax savings for the purchasing partner. In this case, Cynthia sold her 1/3 interest to Brandon for $80,000 cash and Brandon assumed Cynthia's 1/3 share of partnership liabilities, which totaled $50,000. Therefore, Brandon's total consideration was $130,000 ($80,000 + $50,000). The fair market value of the partnership assets exceeded their basis by $50,000 ($500,000 - $450,000), which is the amount of the total "step-up" that Brandon can take in the partnership assets. Therefore, the answer is C) $50,000.

Cynthia Sells Her 1/3 Interest in the CAR Partnership to Brandon