Megan's basis was $100,000 in the MAR Partnership interest just before she received a proportionate nonliquidating distribution consisting of land held for investment (basis of $80,000, fair market value of $100,000) and inventory (basis of $60,000, fair market value of $50,000).After the distribution, Megan's bases in the land and inventory are, respectively:
A)$80,000 (land) and $20,000 (inventory).
B)$100,000 (land) and $0 (inventory).
C)$40,000 (land) and $60,000 (inventory).
D)$50,000 (land) and $50,000 (inventory).
E)None of the above.

Question

Quizplus · Accepted Answer

Megan's total basis before the distribution is $100,000. After the distribution, her basis in the distribution should equal the fair market value of the property received. Therefore, her new basis in the land is $100,000, since that is its fair market value. Her new basis in the inventory is $50,000, since that is its fair market value. However, Megan must reduce her basis in the inventory by the amount of the distribution allocated to it, which is $50,000. Therefore, her new basis in the inventory is $60,000 - $50,000 = $10,000. Thus, her bases in the land and inventory are $100,000 (land) and $10,000 (inventory), respectively.

Megan's Basis Was $100,000 in the MAR Partnership Interest Just