The RST partnership makes a pro rate distribution of its assets to R in complete
ID: 3199636 • Letter: T
Question
The RST partnership makes a pro rate distribution of its assets to R in complete liquidation of Rs partnership interest. The distribution consists o $20000 in cash and capital assets with basis to the partnership of $15000 and a fair market value of $30000. At the time of distribution , Rs partnership basis is $40000, which is what she paid for the interest one year earlier. If the partnership has no section 754 election in effect what is Rs basis in the property distribution? A if no section 732(d) adjustment is made Rs basis in the capital assets is $15000 B if no section 732(d)adjustment is made Rs basis in the capital asset is $29000 C if no section 732(d) adjustment is made Rs basis in the capital assets is $35000 D if no section 732(d) adjustment is made Rs basis in the capital assets is $40000 The RST partnership makes a pro rate distribution of its assets to R in complete liquidation of Rs partnership interest. The distribution consists o $20000 in cash and capital assets with basis to the partnership of $15000 and a fair market value of $30000. At the time of distribution , Rs partnership basis is $40000, which is what she paid for the interest one year earlier. If the partnership has no section 754 election in effect what is Rs basis in the property distribution? A if no section 732(d) adjustment is made Rs basis in the capital assets is $15000 B if no section 732(d)adjustment is made Rs basis in the capital asset is $29000 C if no section 732(d) adjustment is made Rs basis in the capital assets is $35000 D if no section 732(d) adjustment is made Rs basis in the capital assets is $40000 A if no section 732(d) adjustment is made Rs basis in the capital assets is $15000 B if no section 732(d)adjustment is made Rs basis in the capital asset is $29000 C if no section 732(d) adjustment is made Rs basis in the capital assets is $35000 D if no section 732(d) adjustment is made Rs basis in the capital assets is $40000Explanation / Answer
Option D is correct.
The distribution of money in excess of partnership basis is to be recognised as gain or loss in complete liquidation of partner's interest,otherwise no gain or loss is recognized and the basis to a partner of property distributed in kind is equal to adjusted basis of the partner's interest reduced by any cash distributed to the partner in the same transaction.
Therefore in the given case , the money distributed is $40,000 which is less than the partnership basis of $150,000, thus there will be no gain or loss.
The adjusted basis of capital asset is to be reduced by cash received of $40,000.
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