Karli owns a 25% capital and profits interest in the calendar-year KJDV Partners

Question

Karli owns a 25% capital and profits interest in the calendar-year KJDV Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $200,000. On that date, she receives a proportionate nonliquidating distribution of the following assets:

$100,000

a. Calculate Karli's recognized gain or loss on the distribution, if any.

b. Calculate Karli's basis in the inventory received.

c. Calculate Karli's basis in land received. The land is a capital asset.

d. Calculate Karli's basis for her partnership interest after the distribution.

Partnership's basis in Asset Asset's Fair Market Value Cash $120,000 $120,000 Inventory $50,000 $60,000 Land held for investment $70,000

$100,000

Explanation / Answer

Ans a Karli will not recognize any gain or loss on the cash distribution because her basis of $200000 exceeds the cash distribution( $120000) hence no gain or loss recognized

Ans b) The adjusted basis of inventory is $50000.l Now first the karlui partnership basis will be reduced by cash distribution $200000-$120000=$80000 and out of this adjusted basis $50000 will be reduced. So now Karli remaining adjusted basis is $30000 ($80000-$30000)

Ans C Now as land is distributed so Karli basis in the land can be maximum upto her remaing basis of $30000 irrespective of the carryover value of the land whih is $70000. So Karli basis in the land is $30000

ANs 4 After the distribution karli Basis is 0 as she has received cash ($1200000), inventory ($50000)and $30000 of land thereby making her basis 0

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