Question

misha receives a proportionate current (nonliquidating) distribution when the basis of his partnership interest is $60,000. the distribution consists of $80,000 cash and inventory (adjusted basis to the partnership of $10,000, fair market value of $20,000). how much gain or loss does misha recognize, and what is his basis in the distributed inventory and in the partnership interest following the distribution?

Answer 1

Misha recognizes a gain of $10,000 and his basis in the distributed inventory remains at $10,000. His basis in the partnership interest after the distribution is -$40,000.

Step-by-step explanation:

When Misha receives a proportionate current distribution, he needs to determine the gain or loss he recognizes and the basis of the distributed inventory and his partnership interest after the distribution.

To calculate the gain or loss, Misha needs to compare the fair market value of the distributed inventory ($20,000) with its adjusted basis to the partnership ($10,000). In this case, the gain recognized would be the difference of $10,000. Since the distribution is in cash and inventory, the total distribution is $80,000 + $20,000 = $100,000.

Misha's basis in the distributed inventory would be the same as the partnership's adjusted basis, which is $10,000. To calculate his basis in the partnership interest after the distribution, Misha needs to subtract the distribution amount from his previous basis. His basis after the distribution would be $60,000 - $100,000 = -$40,000.