ExpertHard1 markMultiple Choice
CPA · Question 20 · Area II: Entity Tax Compliance
Partner X sells their 1/3 interest in a partnership to Buyer Y for $100,000. The partnership has assets with a basis of $150,000 and FMV of $300,000. The partnership has a §754 election in effect. What is the amount of the §743(b) basis adjustment allocated to Buyer Y?
Partner X sells their 1/3 interest in a partnership to Buyer Y for $100,000. The partnership has assets with a basis of $150,000 and FMV of $300,000. The partnership has a §754 election in effect. What is the amount of the §743(b) basis adjustment allocated to Buyer Y?
Answer options:
A.
$0
B.
$50,000
C.
$150,000
D.
$100,000
How to approach this question
Calculate Buyer's Share of Inside Basis. Subtract that from Buyer's Purchase Price (Outside Basis). The difference is the §743(b) adjustment.
Full Answer
B.$50,000✓ Correct
IRC §743(b). Adjustment = Cost of Interest ($100,000) - Share of Adjusted Basis of Partnership Property ($150,000 * 1/3 = $50,000). Adjustment = $50,000. This allows Buyer Y to depreciate the assets based on the $100k value they paid.
Common mistakes
Calculating adjustment on total partnership assets instead of buyer's share; ignoring the §754 election implication.
Practice the full CPA TCP Practice Exam 5
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive is granted an Incentive Stock Option (ISO) to purchase 1,000 shares of co...MediumQ02A taxpayer has a $500,000 interest-free loan from their employer outstanding for the entire Year ...MediumQ03A taxpayer wants to donate stock held for 5 years to a public charity. The stock has an adjusted ...MediumQ04An individual taxpayer had an AGI of $160,000 in Year 1 and a tax liability of $30,000. In Year 2...MediumQ05A taxpayer invests $50,000 cash for a 20% interest in a partnership. The partnership takes out a ...Hard