ExpertHard1 markMultiple Choice
CPA · Question 20 · Area II: Entity Tax Compliance
Partner X sells their 1/3 interest in a partnership to Buyer Y for $100,000. The partnership has assets with a basis of $150,000 and FMV of $300,000. The partnership has a §754 election in effect. What is the amount of the §743(b) basis adjustment?
Partner X sells their 1/3 interest in a partnership to Buyer Y for $100,000. The partnership has assets with a basis of $150,000 and FMV of $300,000. The partnership has a §754 election in effect. What is the amount of the §743(b) basis adjustment?
Answer options:
A.
$0
B.
$50,000
C.
$100,000
D.
$150,000
How to approach this question
Calculate the 'Inside Basis Gap'. Buyer paid $100k. Buyer 'owns' $50k of inside basis. The gap is $50k. That's the adjustment.
Full Answer
B.$50,000✓ Correct
$50,000
IRC §743(b) provides for an adjustment equal to the difference between the transferee's basis in the partnership interest ($100,000) and the transferee's proportionate share of the adjusted basis of partnership property ($150,000 * 1/3 = $50,000). Adjustment = $100,000 - $50,000 = $50,000.
Common mistakes
Calculating the adjustment based on the total partnership appreciation rather than the partner's share.
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