Miguel has a 50% interest in partnership capital, profits, and losses. The basis for his partnership interest is $50,000. The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. Miguel receives a distribution of land that has an FMV of $40,000 and an adjusted basis of $30,000. The land is subject to a $15,000 liability, which Miguel assumes. His basis in the partnership interest following the land distribution is
A)$12,500.
B)$20,000.
C)$27,500.
D)$35,000.

Question

Quizplus · Accepted Answer

Miguel's basis in the partnership interest is calculated as follows:
- Original basis: $50,000
- Share of partnership losses: Miguel has a 50% interest in capital, profits, and losses, so his share of partnership losses is also 50%: $25,000
- Assumed liability: Miguel assumed a liability of $15,000, which increases his basis: $15,000
- FMV of property received: The FMV of the land is $40,000, which becomes Miguel's new basis in the property: $40,000
- Adjusted basis of property received: The property has an adjusted basis of $30,000, which reduces Miguel’s basis by the same amount: -$30,000

Therefore, Miguel’s basis in the partnership interest following the land distribution is calculated as follows:

$50,000 (original basis) - $25,000 (share of partnership losses) + $15,000 (assumed liability) + $40,000 (FMV of land received) - $30,000 (adjusted basis of land received) = $27,500.

Miguel Has a 50% Interest in Partnership Capital, Profits, and Losses