Question

C and D are equal partners in the CD partnership. C starts the year with an...

C and D are equal partners in the CD partnership. C starts the year with an adjusted basis of $300 in his partnership interest while D starts the year with an adjusted basis of $600. The partnership distributes cash of $200 and inventory, adjusted basis $450 fair market value $500, to C and cash of $200 and land, adjusted basis $300, fair market value $700, subject to a liability of $200, to D. The partnership continues operation thereafter. What consequences to the parties?

Homework Answers

Answer #1

Solution:

Partner C Amount in $
Received from Firm
Receive Cash 200
Inventory Adjusted basis 450
Total 650
Current Adjusted Basis 300
Taxable in his hand(Amount over adjusted basis) 350
Adjusted basis in Firm (Amount remaining if any after distribution) -

Partner D Amount in $
Received from Firm
Receive Cash 200
Land adjusted basis 300
Liability taken (200)
Total 300
Current Adjusted Basis 600
Taxable in his hand(Amount over adjusted basis) -
Adjusted basis in Firm (Amount remaining if any after distribution) 300

Taxable gain

Partner C = $350

Partner D = Zero

Adjusted basis in Firm

Partner C = Zero

Partner D = $300

Assets taken by partner will be reflect is on the adjusted basis and will be taxable in future when they sale. Taxable gain will be sale price less adjusted basis of firm.

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