Answer:
No option applies, since the remaining basis must equal $7,000 between the three assets.
- inventory's basis = $4,000
- land A's basis = $2,000
- land B's basis = $1,000
Explanation:
Tyson will not recognize any gain or loss, but the basis on the inventory and land will decrease.
We must decrease Tyson's basis by the amount that he received in cash = $23,000 - $16,000 = $7,000
inventory's basis = $4,000
land A's basis = $12,000
land B's basis = $4,000
total = $20,000, remaining basis $7,000 so the basis must decrease by $13,000
Tyson's basis will be first reduced by the lost value of land A (= $12,000 - $8,000).
inventory's basis = $4,000
land A's basis = $12,000 - $4,000 = $8,000
land B's basis = $4,000
His basis still must decrease by $9,000 that will be distributed between both land parcels. Land A will reduce by $6,000 (= $8,000/$12,000 x $9,000)and land B by $3,000 (= $4,000/$12,000 x $9,000).
inventory's basis = $4,000
land A's basis = $8,000 - $6,000 = $2,000
land B's basis = $4,000 - $3,000 = $1,000
