Choice "A" is correct. Strom's basis in the land ($16,000) carries over as an element of his basis in Ace. The assumption by Ace of Strom's liabilities on the land ($24,000) is treated as a distribution of money to Strom, which reduces his basis temporarily to negative $8,000. Then, through his status as a partner of Ace, Strom is treated as re-assuming 25% of the liability, or $6,000, and this increases his basis temporarily to negative $2,000. Since it is impossible to have negative basis, Strom realizes a gain (usually capital) of $2,000, the amount necessary to bring his basis up to zero.Choice "b" is incorrect. Strom's basis in Ace is reduced because of the liability assumed by Ace.
Choice "d" is incorrect. Strom's basis in the land ($16,000) carries over as an element of Strom's basis in Ace.
Choice "c" is incorrect. Strom's basis in the land ($16,000) carries over as an element of Strom's basis in Ace. Then, Strom's basis in Ace is reduced because of the liability assumed by Ace.