Q: What mistakes do candidates make on this CPA question?

Using FMV; allocating full outside basis to the property.

Question 1

A partnership distributes a marketable security (Basis $20,000, FMV $35,000) to a partner in a nonliquidating distribution. The partner's basis in the partnership is $50,000. The partner holds the security for 2 years and sells it for $40,000. What is the partner's basis in the security upon receipt?

Accepted Answer

General Rule: Partner takes the partnership's basis (Carryover Basis), limited to their outside basis. $20k < $50k, so basis is $20k.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using FMV; allocating full outside basis to the property.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 5

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