Natalie, a partner in a real estate partnership, receives a nonliquidating distr

Question

Natalie, a partner in a real estate partnership, receives a nonliquidating distribution consisting of $25,000 cash and property (a Section 1231 asset) valued at $60,000 in July. The partnerships tax basis in the property is $18,000 and Natalie’s tax basis in her partnership interest is $21,000. What is Natalies recognized gain on the distribution and her tax basis in the property received

a.Zero gain; zero basis in the property.

b. $4,000 gain; zero basis in the property

c. $22,000 gain; $18,000 basis in the property

d. Zero gain; $18,000 basis in the property

Explanation / Answer

option b is correct

if in a non liquidating distribution, the book value of cash reduces the basis in the partnership and if cash received is more than the basis in the property gain is recognised to that extent. on distribution of property no gain is recognised.

hence gain will excess cash received over the basis in partnership = 25000-21000= 4000

since no basis left after cash distribution and no gain is recognised on distribution of property, basis in the property will be zero.

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