The Desert Partnership makes a proportionate distribution of its assets to Kenneth, in complete liquidation of his partnership interest.The distribution consists of $60,000 in cash and capital assets with a basis to the partnership of $110,000 and a fair market value of $160,000.None of the payment is for partnership goodwill.At the time of the distribution, Kenneth's partnership basis is $140,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return, it recognizes:
A)Capital gain of $30,000 and increases the basis of its remaining assets by $30,000.
B)Capital loss of $30,000 and decreases the basis of its remaining assets by $30,000.
C)No gain or loss and increases the basis of its remaining assets by $30,000.
D)No gain or loss and decreases the basis of its remaining assets by $30,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The partnership recognizes no gain or loss on the distribution, but it can increase the basis of its remaining assets by the difference between the fair market value and the basis of the distributed assets, which is $30,000.

The Desert Partnership Makes a Proportionate Distribution of Its Assets