Question

T. Palms has a basis of $20,000 for her one-third interest in a partnership. The partnership...

T. Palms has a basis of $20,000 for her one-third interest in a partnership. The partnership has no liabilities, cash of $22,000, and property with a partnership basis of $38,000 and fair market value of $44,000. For her one-third interest, Palms receives the cash of $22,000. If the partnership elects Sec. 754 optional basis adjustment, what is the basis of the retained partnership property?
A. $36,000
B. $40,000
C. $38,000
D. $39,000
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Answer #1

Answer B: $ 40,000

When there is a transfer of a partnership interest because of a sale or exchange the partnership makes the optional adjustment by:

Increasing the adjusted basis of the partnership property by the excess of:

The transferee's basis for his or her partnership interest, over

The transferee's share of the adjusted basis of all partnership property, or

Decreasing the adjusted basis of partnership property by the excess of:

The transferee partner's share of the adjusted basis of all partnership property, over

The transferee's basis for his or her partnership interest.

The FMV of Property = 44,000

Gain on the property = 6,000

Share of T. Palms = 6000*1/3 =2000

Therefore,

Adjusted Basis = 36000+2000 =40000

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