Do You Know The Answer?

Taken from a recent EA examination…

 

Jeff’s outside basis in ABC partnership is $185,000.  He receives this complete liquidation of his interest in the partnership:

                                                                                  Fair       

                                                            Inside           Market  

                                                            Basis*           Value

 

Cash                                                      5,000            5,000

Building                                                50,000        100,000 

Land                                                     40,000          50,000

 

Q.  What is Jeff’s basis in the building?

 

1.   $50,000

2.   $100,000

3.   $116,667

4.   $120,000

 

*Inside basis (i.e. partnership basis) should not be confused with outside basis (Jeff’s basis in the partnership).  They are usually not the same.

 

The applicable rules are found in IRC §732(b) and (c).  Good luck.  Answer and technical explanation to be published next week.