Question 1

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?

Accepted Answer

1. Identify 754/743(b) Scenario: Transfer of interest.
2. Calculate Adjustment: Cost Basis of Transferee ($100,000) - Transferee's Share of Inside Basis ($60,000).
3. Result: $40,000 positive adjustment.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Calculating the adjustment based on the whole partnership rather than just the transferee's share.

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?

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