Question

C and D are equal partners in the CD partnership. C starts the year with an adjusted basis of $300 in his partnership interest while D starts the year with an adjusted basis of $600. The partnership distributes cash of $200 and inventory, adjusted basis $450 fair market value $500, to C and cash of $200 and land, adjusted basis $300, fair market value $700, subject to a liability of $200, to D. The partnership continues operation thereafter. What consequences to the parties?

Answer 1

Partner C	Amount in $
Received from Firm
Receive Cash	200
Inventory Adjusted basis	450
Total	650
Current Adjusted Basis	300
Taxable in his hand (Amount over adjusted basis)	350
Adjusted basis in Firm (Amount remaining if any after distribution)	-

Partner D	Amount in $
Received from Firm
Receive Cash	200
Land adjusted basis	300
Liability taken	(200)
Total	300
Current Adjusted Basis	600
Taxable in his hand (Amount over adjusted basis)	-
Adjusted basis in Firm (Amount remaining if any after distribution)	300

Taxable gain

Partner C = $350

Partner D = Zero

Adjusted basis in Firm

Partner C = Zero

Partner D = $300

Assets taken by partner will be reflect is on the adjusted basis and will be taxable in future when they sale. Taxable gain will be sale price less adjusted basis of firm.