Lesson Assignment # 8 Optional Basis Adjustments

Assignment :

Question #1:

Andrew, Leslie, and Jame are equal partners in a partnership. Andrew contributed land with a tax basis of $10,000 and a value of $50,000, Leslie and Jame each contributed $50,000 of cash, which was invested in AAA-rated debt instruments. The land is now worth $90,000, and the debt instruments are now worth $120,000. Assume the partnership has a Rule 754 election in effect.

What are the consequences if Jamie sells his interest in the partnership to Marc for $70,000? (Assume Jamies outside basis is still $50,000)

What are the consequences if Andrew sells his interest in the partnership to Marc for $70,000? (Assume Andrews outside basis is still $10,000).

Question #2: Denise purchases for $30,000 a 20% interest in a partnership that has inventory with a tax basis of $50,000 and a value of $100,000 and depreciable property with a tax basis of $100,000 and a value of $50,000. The partnership did not have a Rule 754 election at the time of Denises acquisition.

If the partnership distributes a 20% interest in the inventory and depreciable property to Denise within two years of her acquisition of the 20% interest, what is Denises basis in the distributed assets if no election is made under Rule 732(d) (and the values and bases of the property remain constant)? What is her basis if an election is made under Rule 732(d)?