Ben has a 25% capital and profits interest in the calendar-year GDJ Partnership.
ID: 2487388 • Letter: B
Question
Ben has a 25% capital and profits interest in the calendar-year GDJ Partnership. His adjusted basis for his partnershp interest on October 15 of the current year is $300,000. On that date, the partnership liquidates and makes a proportionate distribution of the following assets to Ben:
a. Calculate Ben's recognized gain or loss on the liquidating distribution, if any.
b. How would your answer to (a) change if the partnership also distributed a small parcel of land it had held for investment to Ben? Assume the land has a $5,000 adjusted basis (FMV is $8,000) to the partnership.
Partnership's Basis in Asset Asset's Fair Market Value Cash $70,000 $70,000 Inventory $120,000 $150,000Explanation / Answer
a) Josh recognizes a $110,000 capital loss on the distribution. The loss is the difference between his $300,000 adjusted basis and the $190,000 ($70,000 + $120,000) inside basis of the cash and inventory distributed to him.
b) Josh would not recognize any loss on the distribution and the land would take a $110,000 adjusted basis. A loss cannot be recognized if any assets other than cash, unrealized receivables, and inventory are received in the distribution. Because land is generally a capital asset, it will absorb the entire remaining basis of $110,000.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.