David’s basis in the Jimsoo Partnership is $63,000. In a proportionate liquidating distribution, David receives cash...

David’s basis in the Jimsoo Partnership is $63,000. In a proportionate liquidating distribution, David receives cash of $9,000 and two capital assets: (1) Land A with a fair market value of $24,000 and a basis to Jimsoo of $19,000, and (2) Land B with a fair market value of $11,500 and a basis to Jimsoo of $19,000. Jimsoo has no liabilities.

b. What is David’s basis in the distributed assets? (Round your intermediate and final answers to the nearest whole dollar amount.)

c1. If the two parcels of land had been inventory to Jimsoo, what are the tax consequences to David (amount and character of gain or loss)?
c2. What is David's basis in distributed assets?

Solutions

Expert Solution

Jimsoo 's basis of the distrubuted assets is less than that of David's outside basis and David recieves other property while distribution. So in order to defer his loss, David needs to adjust the basis of the land.

- David received a basis of $9000 cash, $19000 to land 1, $19000 to land 2.

Total basis = $47000
David basis in jimsoo partnership = $63000
Remaining outside basis = $63000 - $47000 = $16000

So david needs to allocate the excess outside basis to the basis in distributed assets

- Now David needs to allocate the required increase to the land with unrealized appreciation to the extent of fair value of land .
Therefore, increases the basis of land 1 by $5000 to the extent of its fair value of $24000.
Thus there is remaining $11000 ( $16000 - $5000 ) need to be allocated.
- And now in order to allocate the $11000, David need to increase the basis of land 1 and Land 2 in proportion to their relevant fair market values.

Land 1 = $11000 × ($24000 ÷ $35500) = $7437
Land 2 = $11000 × ($11500 ÷ $35500) = $3563

THEREFORE
Davids basis in distributed assets
Cash = $9000.
Land 1 = $19000+$5000+$7437 = $31437.
Land 2 = $19000+$3563 = $22563.

c1. David does not recognize any gain or loss on distribution.

c2. David's basis in distributed assets will remain same as in Point b above. i.e,

Cash = $9000.
Land 1 = $19000+$5000+$7437 = $31437.
Land 2 = $19000+$3563 = $22563.

kindly give a ?. It helps me. Thanks!!

ekkarill92 answered 1 year ago

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