ExpertHard1 markMultiple Choice
CPA · Question 38 · Area II: Entity Tax Compliance
Partner A sells their 1/3 interest in a partnership to Buyer B for $100,000. The partnership has assets with a basis of $150,000 and FMV of $300,000. A Section 754 election is in effect. What is the amount of the Section 743(b) basis adjustment allocated to Buyer B?
Partner A sells their 1/3 interest in a partnership to Buyer B for $100,000. The partnership has assets with a basis of $150,000 and FMV of $300,000. A Section 754 election is in effect. What is the amount of the Section 743(b) basis adjustment allocated to Buyer B?
Answer options:
A.
$0
B.
$100,000
C.
$50,000
D.
$150,000
How to approach this question
Calculate Transferee's Share of Inside Basis: $150,000 * 1/3 = $50,000. Adjustment = Purchase Price ($100,000) - Share of Inside Basis ($50,000) = $50,000.
Full Answer
C.$50,000✓ Correct
C
IRC §743(b). The adjustment is the difference between the transferee's basis in the partnership interest ($100,000) and their proportionate share of the adjusted basis of partnership property ($50,000). Adjustment = $50,000.
Common mistakes
Using the full FMV or basis instead of the partner's share.
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