Question

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 1 with a fair market value of $24,000 and a basis to Jimsoo of $19,000, and (2) land 2 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? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) Basis Cash Land 1 Land 2

Answer 1

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, $24000 to land 1 , $11500 to land 2.

Total basis = $44500
David basis in jimsoo partnership = $63000
Remaining outside basis = $63000 - $44500 = $18500

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 $13500 ( $18500 - $5000 ) need to be allocated.

- And now in order to allocate the $13500, David need to increase the basis of land 1 and Land 2 in proportion to their relevant fair market values.

Land 1 = $13500 × ($24000 ÷ $35500) = $9127
Land 2 = $13500 × ($11500 ÷ $35500) = $4373

THEREFORE

Davids basis in distributed assets

Cash = $9000.

Land 1 = $24000+$5000+$9127 = $38127.

Land 2 = $11500+$4373 = $15873.

_____×_____

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