XYZ an equal three person partnership has cash of 12000 and

XYZ, an equal three person partnership, has cash of $12,000 and securities of $15,000 FMV with an adjusted basis of $3000 to the partnership. Assume that Z sells her interest to W for $9000. If the new partnership subsequently sells the securities at their FMV of $15000, what must partner W include in taxable income if a Section 754 election is in effect? A. 0 B. $4000 C $6000 or D. $12000

Solution

answer is option A

partner W include in taxable income if a Section 754 election is in effect = (FMV-adjusted basis)* partner\'s share - amount paid to buy Z\'sahre

= ((15000-3000)*50%) -9000

= 6000 -9000 = -3000

Therefore no taxable income

Therefore answer is option A $0