David’s basis in the Jimsoo Partnership is $61,500. In a proportionate liquidati

Question

David’s basis in the Jimsoo Partnership is $61,500. In a proportionate liquidating distribution, David receives cash of $8,700 and two capital assets: (1) land 1 with a fair market value of $23,400 and a basis to Jimsoo of $18,550 and (2) land 2 with a fair market value of $11,275 and a basis to Jimsoo of $18,550. Jimsoo has no liabilities.

a. How much gain or loss will David recognize on the distribution? What is the character of any recognized gain or loss?

b. What is David’s basis in the distributed assets

Explanation / Answer

David does not recognize any gain on the distribution because the cash received is less than his basis of $ 61500.

David’s basis in the distributed assets = 61500 less cash received 8700= 52800 [Sec. 732(b)].

The Partnership has no unrealized receivables or appreciated inventory, so Sec. 751 does not apply

The basis of $ 52800 will be allocated in Land 1 and Land 2 in ration of their Fair Market Value.

i.e.

For land 1 = $ 35631 and For Land 2 = $ 17169

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