Mondy had an adjusted basis in her partnership interest of $39,000 before receiving a current distribution. In the current distribution (to which Sec. 751 does not apply), she received the following: Basis Fair Market Value Cash $ 3,000 $ 3,000 Inventory 15,000 17,000 Land 1 10,000 15,000 Land 2 20,000 25,000 What is her basis in each of the items received

$3,000 cash

$15,000 inventory

$7,000 land 1

$14,000 land 2

Explanation:

In this case, Mondy will have a $3,000 basis in the cash and a $15,000 basis in the inventory.

This leaves $21,000 of basis to allocate to the two parcels of land ($39,000 beginning basis – $3,000 cash – $15,000 inventory).

Each parcel of land its carryover basis from the partnership ($10,000 for land 1 and $20,000 for land 2). The total adjusted bases of the distributed properties exceed the partner’s remaining basis in the partnership, a $9,000 decrease must be allocated next ($30,000 total adjusted bases of land – $21,000 remaining basis in partnership interest = $9,000 decrease to allocate).

The $9,000 decrease is allocated in proportion to the respective adjusted bases of the land in the calculation ($10,000 land 1 and $20,000 land 2) [($3,000) to land 1 and ($6,000) to land 2].

Land 1 Land 2

Carryover basis: $10,000 $20,000

Allocated decrease (1/3 to Land 1 and 2/3 to Land 2): (3,000) (6,000)

Basis $ 7,000 $14,000