A is a one-third partner in Partnership ABC. A sells his one-third interest in ABC to D on January 1 of the current year for $200,000. ABC is a cash-method, calendar-year partnership. ABC has a section 754 election in effect. The balance sheet of ABC is as follows:

$150,000 of depreciation was taken on the furniture, fixtures, and equipment, and thus the original basis was $300,000. Assume for the sake of the problem that the outside basis of the partners in their partnership interests (without taking into consideration their allocable share of debt under I.R.C section 752) is equal to their capital as shown on the balance sheet.

a. How much of a step-up in basis is available?

b. How is the step-up in basis allocated to ABC's assets?

Transcribed Image Text:

Assets Basis Cash FMV $10,000 Account Receivable $10,000 Inventory $50,000 $30,000 Furniture, fixture and equipment $40,000 $150,000 $200,000 Goodwill $210,000 $400,000 $400,000 $700.000 Liabilities $100,000 $100,000 Capital-A $100,000 $200,000 Capital-B $100,000 $200,000 Capital-C $100,000 $200,000 $400,000 $700,000 Assets Basis Cash FMV $10,000 Account Receivable $10,000 Inventory $50,000 $30,000 Furniture, fixture and equipment $40,000 $150,000 $200,000 Goodwill $210,000 $400,000 $400,000 $700.000 Liabilities $100,000 $100,000 Capital-A $100,000 $200,000 Capital-B $100,000 $200,000 Capital-C $100,000 $200,000 $400,000 $700,000

Answer rating: 100% (QA)

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