Ariel receives from her partnership a nonliquidating distribution of $9,000 cash plus a parcel of land.The partnership had purchased the land five years ago for $20,000,but it is worth $28,000 at the time of the distribution.Ariel's predistribution basis is $17,000.How much income will Ariel recognize due to the distribution,and what is her basis in the land?

Question

Quizplus · Accepted Answer

To calculate the income that Ariel will recognize due to the distribution, we need to compare the fair market value (FMV) of the land to Ariel's basis. The FMV of the land is $28,000, which is higher than Ariel's basis of $17,000. Therefore, Ariel will recognize income of $11,000 ($28,000 FMV - $17,000 basis) due to the distribution.

To determine Ariel's basis in the land, we need to allocate the total basis of the partnership between the cash and the land received by Ariel. The total basis of the partnership is the sum of the partners' capital accounts, which is not given in the question. However, we can assume that Ariel and her partner share the partnership equally, so the total basis of the partnership would be twice Ariel's basis, or $34,000 ($17,000 x 2).

Since the cash distribution is non-taxable, Ariel's basis in the land is equal to her basis allocation after the distribution. Her basis allocation is $17,000 (her predistribution basis), and the total basis of the partnership is $34,000. Therefore, Ariel's basis in the land is $17,000.

Ariel Receives from Her Partnership a Nonliquidating Distribution of $9,000