Question

Tyson is a 25% partner in the KT Partnership. On January 1, KT makes a proportionate liquidating distribution of $20,000 cash and land with a $16,000 fair value (inside basis $8,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT partnership interest is $20,000. What is Tyson's capital gain and his basis in the distributed land?

Answer 1

Tyson's basis in the distributed land is $0.

He first allocates his outside basis to the distributed assets in an amount equal to KT's basis ($20,000 cash and $8,000 land). This results in a required decrease of $0. He reduces the basis in the land by the required decrease, which results in a basis of $0 to the land.