The basis adjustment under Section 743b will be 27000 It is allocated based on

The basis adjustment under section 743b will be 27000

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The basis adjustment under Section 743(b) will be $27,000. It is allocated based on the relative differences c. between the tax basis and FMV of partnership assets: Basis FMV Difference Property 1 33,000 51,000 $18,000 Property 2 42,000 60,000 18,000 Property 3 27,000 45,000 18,000 TOTAL ASSETS 102,000 156,000 $54,000 Th us, each asset will be allocated one-third of the basis adjustment. Th e bases of the assets will be as follows:
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389 Instructor’s Manual © 2012 CCH. All Rights Reserved. Chapter 20 Original Basis Sec. 743(b) Adjustment Adjusted Tax Basis Property 1 33,000 9,000 $42,000 Property 2 42,000 9,000 51,000 Property 3 27,000 9,000 36,000 TOTAL ASSETS 102,000 27,000 129,000 Consequences to Buyer—No Sec. 754 Election in Effect 58. Assuming no Sec. 754 election, the partnership will recognize an $18,000 gain on sale of property 1. The new a. partner will be allocated fifty percent of this gain, or $9,000. Sec. 743(b) adjustments are made solely for the benefit of the purchasing partner (i.e., the new partner). Thus, b. the $9,000 adjustment to the basis of property 1 will be made entirely for the new partner, and she will be allocated none of the partnership’s gain on sale of property 1. Sale of property 1 for $69,000 would generate a $27,000 taxable gain to the partnership (including the Sec. c. 743(b) adjustment, the partnership’s basis in this asset is equal to $42,000). However, as noted above, the basis adjustment is allocated entirely to the new partner. Thus, her share of the partnership’s gain is equal to $9,000, computed as follows: New partner's share of selling proceeds (50%) $34,500 New partner's share of partnership basis in property 1: Share of original $33,000 basis in P1 16,500 Section 743(b) adjustment 9,000 (24,500) New partner's allocable share of partnership gain on sale of Property 1 $ 9,000 Allocation of Sec. 743(b) Adjustment 59. The basis adjustment under Section 743(b) is allocated based on the relative differences between the tax basis a. and FMV of partnership assets: Basis FMV Difference Asset 1 26,000 50,000 $24,000 Asset 2 45,000 31,000 N/A Asset 3 36,000 48,000 12,000 TOTALS 107,000 129,000 $36,000 Thus, two-thirds (24,000/36,000) of the basis adjustment is allocated to Asset 1, and one-third (12,000/36,000) is allocated to Asset 3. The new bases of the assets will be as follows: Original Basis Sec. 743(b) Adjustment Adjusted Tax Basis Asset 1 26,000 14,000 $40,000 Asset 2 45,000 N/A 45,000 Asset 3 36,000 7,000 43,000 TOTALS 107,000 21,000 128,000
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390 CCH Federal Taxation—Comprehensive Topics Chapter 20 © 2012 CCH. All Rights Reserved. The basis adjustment would now be allocated among all three assets, as follows: b. Basis FMV Difference Asset 1 26,000 50,000 $24,000 Asset 2 45,000 57,000 12,000 Asset 3 36,000 48,000 12,000 TOTALS 107,000 155,000 $48,000 Now only half (24,000/48,000) of the basis adjustment is allocated to Asset 1, and one-fourth (12,000/48,000) is allocated to each of Assets 2 and 3. Th e new bases of the assets will be as follows: Original Basis Sec. 743(b) Adjustment Adjusted Tax Basis Asset 1 26,000 10,500 $36,500 Asset 2 45,000 5,250 50,250 Asset 3 36,000 5,250 41,250 TOTALS 107,000 21,000 128,000 Liquidating Distribution—Sec. 734(b) Adjustments 60. None. The cash portion of the distribution does not exceed the tax basis of his interest in the partnership. a.
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