Final answer:
Mario's gain from the liquidating distribution is $24,000, which is a capital gain. This is calculated by deducting Mario's adjusted basis from the fair value of the land after the cash distribution.
Step-by-step explanation:
Mario is a 40% partner in the MPC Partnership which is making a liquidating distribution to him. To determine the amount and character of Mario's gain or loss from the liquidating distribution, we must compare the partnership's distribution with his adjusted basis in the partnership interest just before the distribution.
The distribution consists of $32,000 in cash and land with a fair value of $32,000. However, the land has an inside basis of $16,000. Since this is a liquidating distribution, we first apply the cash against Mario's basis in the partnership. Thus, his $40,000 basis is reduced by the $32,000 cash received, leaving an $8,000 adjusted basis that applies to the land. Since the fair value of the land ($32,000) exceeds the remaining basis, Mario recognizes a gain on the distribution.
The calculation of the gain would be the difference between the fair value of the land and his adjusted basis in the land after the distribution of cash. The gain = $32,000 (fair value) - $8,000 (remaining adjusted basis) = $24,000. Because the distribution is liquidating, the gain is generally treated as capital gain.