Catherine's basis was $50,000 in the CAR Partnership just before she received a proportionate 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)None of these statements is correct.

Question

Quizplus · Accepted Answer

The basis of the land received is equal to its basis in the partnership before the distribution, which is $40,000. The basis of the inventory received is reduced by the difference between its basis and fair market value, which is $0. Catherine's basis in the land received is $40,000, and her basis in the inventory received is $40,000 - $40,000 = $0. Therefore, the correct choice is C.

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