In: Accounting
Karli owns a 25% capital and profits interest in the calendar-year KJDV Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $200,000. On that date, she receives a proportionate current (nonliquidating) distribution of the following assets.
Partnership’s Basis |
FMV |
|
Cash |
$150,000 |
$150,000 |
Inventory |
30,000 |
60,000 |
Land (held for investment) |
70,000 |
100,000 |
a. Calculate Karli’s recognized gain or loss on the distribution, if any.
b. Calculate Karli’s basis in the inventory received.
c. Calculate Karli’s basis in land received. The land is a capital asset.
d. Calculate Karli’s basis for her partnership interest after the distribution.
a.) | Karli will not recognize any gain or loss on the distribution because the $150,000 cash distributed does not exceed her $200,000 outside basis. |
b.) | The inventory has an adjusted basis of $30,000 to Karli. The partnership will distribute the $150,000 cash first, thereby reducing her outside basis for her partnership interest to $50,000 (200,000 – 150,000). The inventory will be distributed next, taking a carryover basis of $30,000 and reducing the adjusted basis for her partnership interest to $20,000 |
c.) | The land parcel is distributed last and takes a $20,000 substituted basis because the basis in the land cannot exceed Karli’s remaining basis in her partnership interest. |
d.) | Karli’s basis for her partnership interest after the distribution is $0. Her entire $200,000 outside basis has been allocated to the distributed assets in the following amounts: |
Cash | $150,000 |
Inventory | $30,000 |
Land | $20,000 |
Total | $ 200,000 |