Question

# Partner A received the following in a non-liquidating distribution: Basis               FMV Cash   \$20,000          &nb

Partner A received the following in a non-liquidating distribution:

Basis               FMV

Cash   \$20,000           \$20,000

Inventory Item 1                     \$15,000           \$18,000

Inventory Item 2                     \$12,000           \$4,000

Capital Asset 1                       \$15,000    \$8,000

Capital Asset 2 \$10,000   \$20,000

\$72,000           \$70,000

Assume A’s basis in the partnership before the distribution was \$35,000. What would the bases of the assets be to A?

#### Homework Answers

Answer #1

The cash of \$20,000 would reduce the basis available to the inventory to \$20,000. However, since the inventory has total basis of \$15,000 and \$12,000 = \$27,000, there is a \$7,000 deficit. The deficit will first be allocated to the depreciated inventory (12000 - 4000 = 8000) (Item 2), to the extent of the depreciation. The other (\$7000 - \$8000 =\$1,000 of deficit will be allocated to the inventory items according to their remaining bases:

Bitmap Bitmap Bitmap
 Item 1 = \$1000 x \$15000/\$19000
\$      789.47
Item 2= \$1000 x \$4000/\$19000 \$      210.53
View Full Document

Item 1’s basis would be \$15000 - \$789.47

\$ 14,210.53
Item 2’s basis would be \$12000 - \$8000 - \$210.53 \$   3,789.47
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