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?
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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