Kathy Purchases a One-Third Interest in the KDP Partnership from Paul

question 4

Multiple Choice

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000. Just prior to the sale, Paul's outside and inside bases in KDP are $48,000. KDP's balance sheet includes the following: $$\begin{array}{l}\begin{array} { l r r } \text { Assets: } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { \$ 4 8 , 0 0 0 } & \$ \mathbf { 4 8 , 0 0 0 } \\\text { Land held for investment } & \mathbf { 9 6 , 0 0 0 } & \mathbf { 1 3 2 , 0 0 0 }\end{array}\\\\\text { Liabilities and Capital: }\\\begin{array} { r r } \text { Capital } \text { - Paul } &&&& \mathbf { 4 8 , 0 0 0 } \\\text { - Kristi } &&&& \mathbf { 4 8 , 0 0 0 } \\\text { - David } &&&& \mathbf { 4 8 , 0 0 0 }\end{array}\end{array}$$ If KDP has a §754 election in place, what is Kathy's special basis adjustment?

• A) $0
• B) $36,000
• C) $12,000
• D) None of these is correct.

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