Question

Lily is selling her entire 50% partnership interest in the Lilac Partnership. Lilac’s assets consist solely of an item of depreciable equipment with a fair market value of $2,000, and Lily is selling her partnership interest for $1,000. The original cost to the partnership for the equipment is $3,000 and the partnership has taken $1,400 of depreciation. Which of the following statements is true? Question 1 options:

1) The sale gives rise to an ordinary gain of $200 for Lily.

2) The partnership has unrealized receivables of $400.

3) Lily will recognize a capital gain $200.

4) Both a and b are true.

5) Both b and c are true.

Sally is selling her entire interest in the LG Partnership to Bob for $5,000. The inside basis for Sally’s interest is $3,500. If LG makes an election under § 754, the following is true regarding the § 743(b) adjustment.

Question 4 options:

	1) The partnership will record additional tax basis of $1,500 in its assets.
	2) Bob will obtain additional basis in the partnership assets of $1,500.
	3) Both a and b are true.
	4) Neither a nor b are true.

Answer 1

Hi

Let me know in case you face any issue:

Solution: 3) Lily will recognize a capital gain $200 Answer: Explanation: Sale Price of Lily of her interest $1,000 $ 800 $ 200 Capital gain recongized by Lity 3) Both a and b are true Answer: Explanation: The purpose of election of section 754 is to eliminate the discrepancies between inside basis of asset and outside bases of partner's interest. Partnership with section 754 election in effect is required to Increase the basis of remaining partnership property in the amount of any additional cost paid by new partner. In this case, Bob's basis is $5000. As a result, partnership must increase the basis of its remaining or present property by $1500 for depreciation attributable to IRC Sec. 743(b) basis adjustments.