Question

Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership five years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $45,500. On December 31, KH makes a proportionate operating distribution of $48,500 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH

Answer 1

Harrison would have a gain of $3,000 and his remaining basis in KH partnership would now be $0.

Step-by-step explanation:

With regards to the above, in order for Harrison to make any gain, the amount of cash received by him from operating distribution in the KH partnership should be greater than his share or basis in the partnership business. Here, the cash received $48,500 received by him is actually more that his basis $45,500; hence he has a gain of $3,000[$48,400 - $45,500]

Also, since he(Harrison) has allocated his entire basis in KH partnership, this means that he has no basis left. After the operating distribution , he has $0 basis left in KH partnership.