ExpertHard1 markMultiple Choice
CPA · Question 33 · Area V: Entity Taxation
In a non-liquidating distribution, a partnership distributes cash of $10,000 and property with an adjusted basis of $20,000 to a partner. The partner's outside basis immediately before the distribution was $25,000. What is the partner's basis in the distributed property?
In a non-liquidating distribution, a partnership distributes cash of $10,000 and property with an adjusted basis of $20,000 to a partner. The partner's outside basis immediately before the distribution was $25,000. What is the partner's basis in the distributed property?
Answer options:
A.
$20,000
B.
$25,000
C.
$15,000
D.
$0
How to approach this question
Ordering Rule: 1. Reduce Outside Basis by Cash. 2. Property takes Carryover Basis, LIMITED to remaining Outside Basis. Start: $25k. Less Cash $10k = $15k remaining. Property wants $20k, but only $15k is available. Property Basis = $15k.
Full Answer
C.$15,000✓ Correct
Basis is reduced by cash first. $25,000 - $10,000 = $15,000 remaining basis. The property generally takes a carryover basis ($20,000), but it is limited to the partner's remaining outside basis ($15,000). Therefore, the basis in the property is $15,000, and the partner's outside basis becomes $0.
Common mistakes
Reducing basis by property first.
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