ExpertMedium1 markMultiple Choice
CPA · Question 38 · Area II: Entity Tax Compliance
A partnership has a §754 election in effect. Partner A sells their 25% interest to Buyer B for $200,000. At the time of sale, the partnership's inside basis in its assets is $600,000 (FMV $800,000). Buyer B's share of inside basis is $150,000 (25% of $600k). What is the amount of the §743(b) basis adjustment?
A partnership has a §754 election in effect. Partner A sells their 25% interest to Buyer B for $200,000. At the time of sale, the partnership's inside basis in its assets is $600,000 (FMV $800,000). Buyer B's share of inside basis is $150,000 (25% of $600k). What is the amount of the §743(b) basis adjustment?
Answer options:
A.
$0
B.
$200,000
C.
$50,000
D.
$150,000
How to approach this question
Adjustment = Purchase Price - Partner's Share of Inside Basis.
Full Answer
C.$50,000✓ Correct
C
IRC §743(b). The adjustment is the difference between the transferee's basis in the partnership interest ($200,000) and the transferee's share of the adjusted basis of partnership property ($150,000). Adjustment = $50,000.
Common mistakes
Using the full FMV difference instead of the partner's share.
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