The BAM Partnership distributed the following assets to partner Barbie in a proportionate non-liquidating distribution: $10,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $25,000, fair market value of $20,000).Barbie's basis in her partnership interest was $40,000 immediately before the distribution.Barbie will allocate a basis of $15,000 each to the two land parcels, and her basis in her partnership interest will be reduced to $0.

Question

Quizplus · Accepted Answer

Barbie cannot allocate a total of $30,000 ($15,000 each) to two properties with a total fair market value of $50,000 ($30,000 + $20,000). She must allocate the total fair market value of the properties, which is $50,000, among them in proportion to their respective fair market values. The allocation would be $36,000 to land parcel A (30,000/50,000 x $60,000) and $14,000 to land parcel B (20,000/50,000 x $60,000). This would result in a total basis allocation of $41,000, which is greater than Barbie's $40,000 basis in her partnership interest before the distribution. Therefore, her basis in her partnership interest would not be reduced to $0.

The BAM Partnership Distributed the Following Assets to Partner Barbie