Question

Tyson is a 25% partner in the KT Partnership. On January 1, KT distributes $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and land with a fair value of $8,000 (inside basis of $12,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in KT is $24,000.


What is Tyson's basis in the distributed inventory and land?


A) $8,000 inventory, $12,000 land


B) $16,000 inventory, $8,000 land


C) $0 inventory, $8,000 land


D) $8,000 inventory, $0 land

Answer 1

Answer:

D) $8,000 inventory, $0 land

Explanation:

Tyson's basis in the distributed inventory and land will be $8,000 inventory, $0 land

Because he initially first allocates his outside basis to the assets distributed which is in an amount that is equal to KT's basis which is ($20,000 cash and $8,000 land).

Therefore this results in a required decrease of $0 due to the basis he reduces in the land by the required decrease, which thereby results in a basis of $0 to the land.