George contributed nondepreciable property with a basis of $100,000 and a fair m

Question

George contributed nondepreciable property with a basis of $100,000 and a fair market value of $120,000 to the Pear Partnership in 2012 in exchange for a 40% interest in the partnership. In 2013, he receives a nonliquidating distribution from the partnership of other property with a basis to the partnership of $40,000 and a fair market value of $80,000. The basis in his partnership interest at the time of the distribution was $55,000. How much gain or loss does George recognize on the distribution? (Assume no other distributions have been made to George, the property he originally contributed is still owned by the partnership, and this is not a disguised sale transaction.): Select one:

a. $20,000 gain.

b. $25,000 gain.

c. $0 gain or loss.

d. $40,000 gain.

Explanation / Answer

Base value of asset contributed for 40% share in the firm is $100000, so it will be cost of purchase of stake in the firm.

Now when firm distribute the asset to the partners the base value of the property will be taken as the amount of distribution. So, the amount distributed to George is $40000

the gain George has to recognize is $40000 other matter is of no importance at this point as the stake % of George is not reduced with the distribution.

option d is correct $40000 gain.

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