Carla,Marla,and Yancy are equal partners in the CMY Partnership.The partnership balance sheet reads as follows on December 31 of the current year.

Partner Yancy has an adjusted basis of $35,000 for his partnership interest.If Yancy sells his entire partnership interest to new partner Paula for $60,000 cash,how much can the partnership step-up the basis of Paula's share of partnership assets under §§ 754 and 743(b)?
A)$17,000.
B)$25,000.
C)$35,000.
D)$60,000.
E)None of the above.

Question

Carla,Marla,and Yancy are equal partners in the CMY Partnership.The partnership balance sheet reads as follows on December 31 of the current year.

Partner Yancy has an adjusted basis of $35,000 for his partnership interest.If Yancy sells his entire partnership interest to new partner Paula for $60,000 cash,how much can the partnership step-up the basis of Paula's share of partnership assets under §§ 754 and 743(b)?
A)$17,000. 
B)$25,000. 
C)$35,000. 
D)$60,000. 
E)None of the above.

Quizplus · Accepted Answer

Since Yancy's adjusted basis is $35,000 and he sold his entire partnership interest for $60,000, he has a capital gain of $25,000. According to § 743(b), the partnership can step-up the basis of Paula's share of partnership assets by the amount of the gain recognized by Yancy, which is $25,000. Therefore, the answer is B, $25,000.

Carla,Marla,and Yancy Are Equal Partners in the CMY Partnership