Mark, Pete and Mickey are equal partners in the 2MP Partnership, a general partn

Question

Mark, Pete and Mickey are equal partners in the 2MP Partnership, a general partnership. On January 1, 2016, Mark’s adjusted basis in his partnership interest was $15,000, Pete’s adjusted basis in his partnership interest was $10,000, and Mickey’s adjusted basis in his partnership interest was $20,000. The partnership had taxable income of $30,000 in 2014 which was allocated equally among the partners. On December 31, 2016, the partnership made a non-liquidating distribution of $25,000 cash to Pete. How much income or gain did Pete recognize as a result of the distribution?

a.             0

b.            $5,000

c.             $15,000

d.            $25,000

Explanation / Answer

Income or gain did Pete recognize as a result of the distribution:

Non liquidating distribution of cash to pete = $25,000

less: Partnership Interest of pete =($10,000)

less: Taxable inome of partnership

distributed equally ($30,000/3) = ($10,000)

The gain pete recognizes as a result of distribution = $5,000

hence the option is B ie.,$5,000

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