Question

Pablo has a $63,000 basis in his partnership interest. On May 9 of the current tax year the partnership distributes to him, in a proportionate nor liquidating distribution, cash of $25,000, cash basis receivables with an inside basis of $0 and a fair market value of $16,000, and land with a basis and fair market value to the partnership of $80,000.

1. How much is Pablo s realized and recognized gain on the distribution?
2. What is Pablo's basis in the receivables, land, and partnership interest following the distribution?

Answer 1

1. How much is Pablo s realized and recognized gain on the distribution?

Pablo's realized gain = $25,000 (cash) + $16,000 (cash receivable) + $80,000 (land) - $63,000 (basis) = $58,000

Pablo's recognized gain = $0, since the cash distribution reduces his partnership basis to $38,000 ($63,000 - $25,000), the receivables have a $0 basis, and land distributions are not recognized as gains.

2. What is Pablo's basis in the receivables, land, and partnership interest following the distribution?

Pablo's basis in the receivables = $0

Pablo's basis in the land = $63,000 - $25,000 = $38,000

Pablo's partnership interest = $0