Question

Landis received $90,000 cash and a capital asset (basis of $50,000, fair market value of $60,000) in a proportionate liquidating distribution. His basis in his partnership interest was $120,000 prior to the distribution. How much gain or loss does Landis recognize, and what is his basis in the asset received?a. $0 gain or loss; $30,000 basis.

b. $0 gain or loss; $50,000 basis.
c. $0 gain or loss; $60,000 basis.
d. $20,000 gain; $50,000 basis.
e. $30,000 gain; $60,000 basis.

Answer 1

a. $0 gain or loss; $30,000 basis.

Step-by-step explanation:

Since the partnership is being liquidated, Landis doesn't have to recognize any gain or loss resulting from the liquidation because the cash amount that he is receiving is less than his partnership interest. The asset's basis = $120,000 - $90,000 (cash) = $30,000, regardless of its current market value or prior basis.