A partnership distributes cash of $20,000 and property (Basis $15,000, FMV $25,000) to a partner in a nonliquidating distribution. The partner's outside basis before the distribution is $30,000. What is the partner's basis in the received property?

Answer options:

$15,000

$25,000

$10,000

How to approach this question

Order: 1. Reduce basis by Cash. 2. Property takes lesser of (Inside Basis) or (Remaining Outside Basis).

Full Answer

C.$10,000✓ Correct

IRC §732(a)(2). <br/>1. Basis reduced by cash: $30,000 - $20,000 = $10,000. <br/>2. Property basis is lesser of partnership's basis ($15,000) or partner's remaining basis ($10,000). <br/>Result: Property basis is $10,000.

Common mistakes

Assigning the full inside basis to the property when outside basis is insufficient.

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