ExpertMedium1 markMultiple Choice
CPA · Question 35 · Area 3: Entity Tax Compliance
A partnership has a Section 754 election in effect. Partner B buys Partner A's interest for $100,000. Partner A's share of the inside basis of partnership assets is $60,000. What is the Section 743(b) adjustment?
A partnership has a Section 754 election in effect. Partner B buys Partner A's interest for $100,000. Partner A's share of the inside basis of partnership assets is $60,000. What is the Section 743(b) adjustment?
Answer options:
A.
$0
B.
$40,000 positive adjustment
C.
$40,000 negative adjustment
D.
$100,000 adjustment
How to approach this question
1. Identify 754/743(b) Scenario: Transfer of interest.<br/>2. Calculate Adjustment: Cost Basis of Transferee ($100,000) - Transferee's Share of Inside Basis ($60,000).<br/>3. Result: $40,000 positive adjustment.
Full Answer
B.$40,000 positive adjustment✓ Correct
B
The adjustment is designed to equalize the inside and outside basis for the new partner. $100,000 - $60,000 = $40,000 increase.
Common mistakes
Calculating the adjustment based on the whole partnership rather than just the transferee's share.
Practice the full CPA TCP Practice Exam
68 questions · hints · full answers · grading
More questions from this exam
Q01An individual taxpayer, filing single, exercised 1,000 Incentive Stock Options (ISOs) in Year 1 w...HardQ02A taxpayer has the following income and losses for Year 1:<br/>- Salary: $200,000<br/>- Interest ...HardQ03In Year 1, a taxpayer donates a piece of artwork to a public charity (50% limit organization). Th...HardQ04A taxpayer has $10,000 of investment interest expense in Year 1. They have the following income i...MediumQ05A single taxpayer has the following financial profile for Year 1:<br/>- Wages: $180,000<br/>- Net...Medium