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

The total "step-up" in basis is equal to the excess of the fair market value of the assets over their adjusted basis immediately before the transfer. In this case, Cynthia's 1/3 interest in the partnership includes a share of partnership liabilities, so the adjusted basis of her interest is calculated as follows: 
Adjusted basis = Partnership equity - Share of partnership liabilities 
= $240,000 - ($60,000/3) 
= $220,000 
The fair market value of Cynthia's interest is $80,000, so the excess over her adjusted basis is: 
$80,000 - $220,000 = -$140,000 
Since this is a negative amount, there is no step-up in basis for Brandon to take. Therefore, the correct answer is C) $50,000, which is not an option in this case.

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