ExpertMedium1 markMultiple Choice
CPA · Question 36 · Area II: Entity Tax Compliance
A partner with an outside basis of $50,000 receives a nonliquidating distribution of $20,000 cash and land (Basis to partnership $40,000, FMV $60,000). What is the partner's basis in the land received?
A partner with an outside basis of $50,000 receives a nonliquidating distribution of $20,000 cash and land (Basis to partnership $40,000, FMV $60,000). What is the partner's basis in the land received?
Answer options:
A.
$40,000
B.
$60,000
C.
$30,000
D.
$0
How to approach this question
1. Reduce outside basis by cash ($50k - $20k = $30k). 2. Assign basis to property. General rule is carryover ($40k), but limited to remaining outside basis ($30k). Basis in land = $30k.
Full Answer
C.$30,000✓ Correct
C
IRC §732(a)(2). Basis is reduced by cash first ($20,000). Remaining basis is $30,000. The land has a partnership basis of $40,000. The basis to the partner is limited to the adjusted basis of the partner's interest ($30,000).
Common mistakes
Giving the land its full carryover basis ($40k) despite insufficient outside basis.
Practice the full CPA TCP Practice Exam 3
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive is granted 1,000 Incentive Stock Options (ISOs) with an exercise price of...MediumQ02On January 1, Year 1, a corporation lends $500,000 to a shareholder interest-free. The loan is a ...MediumQ03A taxpayer has regular taxable income of $200,000 in Year 1. They claimed a standard deduction of...MediumQ04A U.S. citizen accepts a permanent assignment in France on January 1, Year 1. They are present in...MediumQ05A 12-year-old child has $5,000 of interest income and no earned income in Year 1. Assume the stan...Hard