Question 1

A partnership distributes cash of $10,000 and property (Basis $15,000, FMV $20,000) to a partner in a nonliquidating distribution. The partner's outside basis before the distribution is $22,000. What is the partner's basis in the received property and the remaining outside basis?

Accepted Answer

Ordering Rule: 1. Reduce outside basis by Cash. 2. Remaining basis is allocated to Property (limited to the partnership's basis in the property). 3. Outside basis cannot go below zero.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Reducing basis by property first; allowing negative basis; using FMV of property.

A partnership distributes cash of $10,000 and property (Basis $15,000, FMV $20,000) to a partner in a nonliquidating distribution. The partner's outside basis before the distribution is $22,000. What is the partner's basis in the received property and the remaining outside basis?

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