ExpertHard1 markMultiple Choice
CPA · Question 36 · Area V: Entity Taxation
A partnership distributes cash of $10,000 and property with a basis of $15,000 (FMV $20,000) to a partner in a non-liquidating distribution. The partner's outside basis before distribution was $22,000. What is the partner's basis in the received property?
A partnership distributes cash of $10,000 and property with a basis of $15,000 (FMV $20,000) to a partner in a non-liquidating distribution. The partner's outside basis before distribution was $22,000. What is the partner's basis in the received property?
Answer options:
A.
$15,000
B.
$12,000
C.
$20,000
D.
$0
How to approach this question
Ordering Rule: 1. Reduce basis by Cash ($22k - $10k = $12k). 2. Property takes carryover basis ($15k) LIMITED to remaining outside basis ($12k).
Full Answer
B.$12,000✓ Correct
B
In a non-liquidating distribution, cash reduces basis first. $22,000 - $10,000 = $12,000 remaining basis. The property normally takes a carryover basis ($15,000), but it is limited to the partner's remaining outside basis ($12,000).
Common mistakes
Reducing basis by property first, or assigning FMV to the property.
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