Question 1

In a non-liquidating distribution, a partnership distributes cash of $10,000 and property with an adjusted basis of $20,000 to a partner. The partner's outside basis immediately before the distribution was $25,000. What is the partner's basis in the distributed property?

Accepted Answer

Ordering Rule: 1. Reduce Outside Basis by Cash. 2. Property takes Carryover Basis, LIMITED to remaining Outside Basis. Start: $25k. Less Cash $10k = $15k remaining. Property wants $20k, but only $15k is available. Property Basis = $15k.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Reducing basis by property first.

In a non-liquidating distribution, a partnership distributes cash of $10,000 and property with an adjusted basis of $20,000 to a partner. The partner's outside basis immediately before the distribution was $25,000. What is the partner's basis in the distributed property?

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