ExpertHard1 markMultiple Choice
CPA · Question 51 · Area 4: Entity Taxation
Partner X has an outside basis of ,000. In a non-liquidating distribution, X receives cash of ,000 and property with a basis to the partnership of ,000 (FMV ,000). What is X's basis in the property received and ending outside basis?
Partner X has an outside basis of ,000. In a non-liquidating distribution, X receives cash of ,000 and property with a basis to the partnership of ,000 (FMV ,000). What is X's basis in the property received and ending outside basis?
Answer options:
A.
Property Basis: ,000; Ending Outside Basis: ,000
B.
Property Basis: ,000; Ending Outside Basis: 0
C.
Property Basis: ,000; Ending Outside Basis: (,000)
D.
Property Basis: ,000; Ending Outside Basis: 0
How to approach this question
Non-liquidating: Basis = Lesser of Partnership's Basis OR Partner's Remaining Outside Basis (after cash). Cash first!
Full Answer
B.Property Basis: ,000; Ending Outside Basis: 0✓ Correct
In a non-liquidating distribution, cash reduces basis first (,000 - ,000 = ,000). The property then takes a carryover basis, limited to the partner's remaining outside basis. Since only ,000 basis remains, the property basis is stepped down to ,000, and outside basis becomes 0.
Common mistakes
Assigning the full partnership basis to the property even when outside basis is insufficient.
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