XYZ an equal 3person partnership has cash of 9000 and securi

XYZ, an equal 3-person partnership, has cash of $9,000 and securities of $15,000 (FMV) with an adjusted basis of $33,000 to the partnership. Assume that Z sells his interest to V for $8,000. If the new partnership subsequently sells the securities when the FMV is $9,000, what must partner V include in taxable income if a Section 754 election is in effect? A) $0, B) $2000 loss, C) $5000 loss, D) $8000 loss. Please explain why.

Solution

Sale value of security- transferee’s share of interest

9000 - 33,000/3 = 9,000 - 11,000 = 2,000 loss